Optimal Patent System Design: Theory And Practice

This paper initially makes a definition toward the patent system and analyzes why it is essential in modern economy. According to the practices in worldwide and the basic implication from bunch of models, there is no one-size-fits-all patent policy in spite of countries and industries.Then, we introduce some classic theoretical models related to the optimal patent design in the western world, based on which a model focusing on patent height is developed. This model is an optimal patent height model without continuous patent race. In another word, it is in a static quality improvement setting, which could serve as a complement to the dynamic quality improvement model in Theon Van Dijk's work.Both of the models share some similar conclusions that patent height is not necessary if the protection is rather low or intermediate. However, high level of patent height will be effective at the cost of huge social welfare loss. As to the "patent trap", we find a totally different channel to explain it by means of taking into account "the crowding out effect". Furthermore, the model also implies that the larger the income gap is, the more will the society suffer from the intermediate and high protection of patent height, which is the so-called "income distribution effect". One deduction is that if a country is not that equal, to minimize the social welfare loss, weak protection of patent should be carried out.After, empirical analyses are made using international and domestic cross-country data in 2007, and time-series regression ranging from 1986 to 2009 is also conducted. All the quantitative and qualitative tests prove that the income distribution effect is quite stubborn.Nonetheless, some scholars question about the rationality and necessity of patent system working as an incentive to innovation. In fact, as is stated in this paper, patent protection may not take effect in some market structures. This paper finally makes an tentative discussion about it.