How many patents does it take to signal innovation quality? |
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| Institution: | 1. John and Willie Leone Family Department of Energy and Mineral Engineering, and EMS Energy Institute, 110 Hosler Building, Pennsylvania State University, University Park, PA 16802, United States;2. Department of Agricultural and Resource Economics, 207 Giannini Hall #3310, University of California at Berkeley, Berkeley, CA 94720, United States;1. Ifo Institute Leibniz Institute for Economic Research at the University of Munich, Poschingerstr. 5, 81679 Munich, Germany;2. Department of Economics, University of Mannheim, 68131 Mannheim, Germany;3. CEPR, United Kingdom;4. CERRE, Belgium;5. CESifo, Germany;6. MaCCI, Germany;7. ZEW, Germany;1. Institute of Agricultural Resources and Regional Planning, Chinese Academy of Agricultural Sciences (CAAS), Beijing 100081, PR China;2. Center for Intellectual Property in Agriculture, CAAS, Beijing 100081, PR China;3. School of Contemporary Chinese Studies, University of Nottingham, Nottingham NG8 1BB, UK |
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| Abstract: | In this paper, we offer a novel explanation to the surge in patenting observed during the last few years. When PTOs (Patent and Trademark Offices) award bad patents, not only do “false innovators” have the incentive to file applications but also, and more interestingly, “true innovators” are forced to patent more intensively in an attempt to signal their type. However, if they are liquidity constrained, true innovators may fail to separate and this fact reduces the incentives to exert effort in R&D. In addition, drawing on the signaling role of patents highlighted by the model, we investigate some of the proposals that have been put forward in order to mitigate the bad patent problem. We provide an intuitive condition under which a tightening of the patentability standards (“raising the bar”) reduces the distortions caused by bad patents. Moreover, we show that introducing a two-tiered patent system is unlikely to improve market outcomes. |
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