Patent replacement and welfare gains |
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Authors: | Earl L. Grinols Hwan C. Lin |
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Affiliation: | a Department of Economics, Baylor University, One Bear Place #98003, Waco, TX 76798-8003, United States b Department of Economics, University of North Carolina at Charlotte, 9201 University City Blvd., Charlotte, NC 28223, United States |
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Abstract: | Patents were chosen in an era when modern public finance tools were unavailable. The same innovation outcomes can be achieved with higher welfare, if patent elements are replaced by modern features. This paper constructs two theoretical models of product innovation and simulates the welfare effects of replacing patents with an intertemporal-bounty arrangement. We find that replacing patents with this alternative has the potential to increase welfare in the United States through reform of pharmaceutical patents by $43.9-$194 billion when measured in present value terms (this is 0.3-1.3% of annual GDP) based on simulations involving four selected drug sectors. The potential to increase welfare would be higher if applied to the larger sector of drugs as a whole. In principal, patents could be replaced in other sectors as well. |
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Keywords: | Patents Innovation Intertemporal bounty Monopoly distortion Welfare |
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