Patent buyout in a model of endogenous growth

Abstract

This paper considers the prospect of a government patent buyout in a model of endogenous growth. To this end, the author modifies a standard quality ladder growth model by incorporating possibility of imitation, and rent protection activities (RPAs) by the innovator. The government finances the buyout by imposing a per unit sales-tax on the goods. The author shows that in this set-up, patent buyout by the government can lead to higher level of welfare without lowering an economy's growth rate along the balanced path. He highlights two sources of welfare improvement: elimination of monopoly pricing, and reduction in RPAs.