Implementation cycles : investment-specific technological change and the length of patents
Rousakis, Michael (2012) Implementation cycles : investment-specific technological change and the length of patents. Working Paper. Coventry: Department of Economics, University of Warwick. The Warwick Economics Research Paper Series (TWERPS) (Number 983). (Unpublished)
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This paper shows that implementation cycles, introduced in Shleifer (1986), are possible in the presence of capital and the absence of borrowing constraints. In a two-sector economy, patents on cost-saving ideas which take the form of investment-specific technological change arrive exogenously at a sequential, perfectly smooth rate: in odd-numbered periods, they reach a firm producing capital of type 1 and, in the even-numbered ones, a firm producing capital of type 2. Firms can make profits out of these once. While the immediate appropriation (henceforth, “implementation”) of patents is always a possibility, for accordingly formed expectations, firms can alternatively implement their patents simultaneously. This is because investment-specific technological change naturally introduces a one-period discrepancy between the time firms implement their patents and the time they receive revenue out of them. The implementation of a patent implies a sharp fall in investment which, in turn, causes a boom in current consumption. As a result, the consumption boom takes place before the wealth boom. This not only eliminates the need to smooth consumption away from the wealth boom to the period before it as conjectured, but, further, it implies that the interest rate paid when revenue is realized -and wealth expands- falls. Consequently, present discounted profits rise and implementation cycles can become a possibility. In a policy extension, I show that prolonging patent rights to two periods rules out “implementation cycles” and may lead to a welfare improvement.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HB Economic Theory
H Social Sciences > HF Commerce
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Economics -- Mathematical models, Patents, Capital investments, High technology industries|
|Series Name:||The Warwick Economics Research Paper Series (TWERPS)|
|Publisher:||Department of Economics, University of Warwick|
|Place of Publication:||Coventry|
|Official Date:||23 March 2012|
|Number of Pages:||48|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
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