Patents and R&D: A Classroom Experiment

Public policy towards patents has assumed a robust positive relationship between the strength of patent protection and the level of innovative research effort even though economic theory and empirical evidence suggest that the impact of patents on research varies considerably by industry.This classroom experiment provides students with an introduction to two competing models of the impact of patents on R&D: the ‘winner-take-all’ model contains incentives for excessive research effort and the ‘knowledge spillover’ model contains incentives for free riding. Class discussion explores potential changes to current patent policy and policy alternatives for stimulating R&D.