American Economic Review: Papers & Proceedings, (2016): 106, no. 5, 183-187. [PDF]
A well-developed theoretical literature–dating back at least to Nordhaus (1969)–has analyzed optimal patent policy design. We re-present the core trade-off of the Nordhaus model and highlight an empirical question which emerges from the Nordhaus framework as a key input into optimal patent policy design: namely, what is the elasticity of R&D investment with respect to the patent term? We then review the–surprisingly small–body of empirical evidence that has been developed on this question over the nearly half century since the publication of Nordhaus’s book.