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1 Launch -------------------Monopoly +7

Clearings and Thickets: Intellectual Property Law and Growth Economics by Robert Cooter and Aaron Edlin European Association of Law and Economics 23 September 2011. Paper revised September 22, 2011 .

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1 Launch -------------------Monopoly +7

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  1. Clearings and Thickets:Intellectual Property Law and Growth EconomicsbyRobert Cooter andAaron EdlinEuropean Association of Law and Economics23 September 2011.Paper revised September 22, 2011. This paper is based on a chapter in a book manuscript tentatively entitled Law and Growth Economics. The first version of this paper was first presented at the Ratio Research Colloquium on “Property Rights, the Conditions for Enterprise and Economic Growth”, StockholmJune16-18, 2011.

  2. Figure 2.1. Payoff to Innovator With Property Right Time ------------------- Market Structure & Net profits 0 Development ------------------- -8 1 Launch -------------------Monopoly +7 2 Imitation ------------------- Imperfect Competition +4 3 Equilibrium ------------------- Perfect Competition 0

  3. Figure 2.2. Payoffs With Developer’s Disadvantage and Without Property Right 1 Launch -------------------Monopoly +7 2 Equilibrium ------------------- Perfect Competition 0 3 Equilibrium ------------------- Perfect Competition 0 0 Development ------------------- -8 Time ------------------- Market Structure & Net profits

  4. Figure 2.4. Future Innovations β` not ownable β ownable β` a b β

  5. Figure 2.5. Effect of High and Low Revenues on Development of Innovations $ C R` R i i` Innovations Arrayed by Profitability From High on Left to Low on Right

  6. Effects of IP on Growth Direction of Monopoly Transfers Consumption or Production (static) Innovation (dynamic) = Faster growth  Innovation (dynamic) Innovation (dynamic) = Slower growth 

  7. Figure 2.6. Rate of Innovation and Patent Length A B Rate of Innovation C 0 5 10 15 20 Duration of Patent in Years

  8. Conclusion: Which ownership rules for IP maximize the pace of economic innovation? A. Welfare Overtaking => Law and policy for intellectual property should maximize the rate of sustained growth, not balance growth against other values. B. Two opposing effects of stronger intellectual property rights on growth 1. transfer from static (consumption &production) to dynamic (innovation) => increases venture profits & growth 2. dead-weight loss and licensing costs in dynamic activities => decreases venture profits & growth C. Prescription: “Stronger intellectual property rights for an innovation in a clearing and weaker rights for innovations in a thicket.”

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