Thursday, August 13, 2015

19 August 2015: Why Economists Need to Take an Interest in Patent Policy

Hazel Moir
Research School of Social Sciences, Australian National University

Where large lumpy investments are combined with a relatively fast ability to imitate an invention, the market for invention may fail and useful new inventions will not attract the requisite investment. This perspective on the rationale for patents particularly characterises the pharmaceutical industry.

Efficient and effective patent policy is that which most closely approximates two conditions:

(i) patents are granted only for inventions which would not otherwise occur; and
(ii) patents are granted only where the social benefits (private plus spillover benefits) exceed the social cost of the monopoly grant.

Most economists pay little attention to the patent system, and when they do they often repeat the mantra that “patents are essential to induce innovation”.

This mantra is based on two critical assumptions – that copying knowledge developed by someone else is costless, and that copying is so fast that there is no natural first mover monopoly period. Substantial evidence exists to indicate that both presumptions are false.

A further assumption that economists tend to make about patent systems is that one cannot get a patent unless there is some inventiveness. Again the evidence demonstrates that this assumption is false. Decades of legal doctrine have changed the criteria for patent grant, such that now only a scintilla of inventiveness is required. Such a low requirement means that the second condition for efficient patent policy is breached. Most granted patents incorporate little if any new knowledge and so provide no spillover benefits. 

Date: August 19, 2015
Time: 03:00 P.M.

Seminar Room (First Floor)
Department of Economics,
Delhi School of Economics,
New Delhi-110007(INDIA)


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