29 , 2017-08 , Graduate School of Economics and Osaka School of International Public Policy (OSIPP) Osaka University
This paper examines how strengthening patent protection affects welfare in a nonscale qualityladder model, which was developed by Segerstrom (1998) and generalized by Li (2003). In the Segerstrom–Li model, patent protection creates no distortion in static allocation among the production sectors. In order to examine the welfare effects of strengthening patent protection adequately, we incorporate a competitive outside good into the Segerstrom–Li model. In the general model, we derive the welfare-maximizing degree of patent protection analytically by utilizing a linear approximation of the transition path. The result shows that the welfare-maximizing degree of patent protection is weaker when the market share of the competitive outside good is psitive than when it is zero. In other words, evaluating the welfare effect of patent protection without considering the static distortion which it creates leads to excessive patent protection.