Patents and R&D with imitation and licensing

We show the effect of patent protection on R&D investment in the presence of 'inventing around' (or 'non-infringing' imitation) and technology licensing. Though the 'tournament effect' under patent protection may reduce R&D investment, we show that the effect of either imitation or technology licensing may always dominate the tournament effect and create higher R&D investment under patent protection. The effect of higher R&D investment on welfare is ambiguous.