Endogenous IPR Protection Expenditure and Economic Growth

This paper analyzes the role of expenditures on property right protection within a standard quality ladder model of endogenous growth. We develop a model where quality of each good improves as a result of innovation. Once the innovator develops a higher quality good there is an exogenously given rate at which the good is targeted for imitation. We allow the innovator to undertake expenditure to protect the good from imitation and thereby reducing the effective probability of imitation. We show that the total intensity of property right protection is inversely related to the cost of property right protection and the effectiveness of the property right system. We also find a subsidy that reduces the per unit cost of property right protection has the same impact as an improvement in the efficiency of the property right system. In both cases the intensity of innovation goes up. We then consider the growth implications of the model and show that in the steady state the economy grows at a constant rate. However, during the transition to the steady state the rate of growth is positively related to the rate of innovation.