Patent term extensions and commercialization lags in the pharmaceutical industry: A growth-theoretic analysis

Abstract

Due to the lags in commercialization, the effective life of a patent is generally less than its statutory term. We introduce commercialization lags into the Schumpeterian growth model and explore the effects of patent term extensions on pharmaceutical R&D and social welfare. Our results show that extending patent terms stimulates the consumption of homogeneous goods but generates an ambiguous effect on the consumption of pharmaceuticals. When patent extensions have an inverted-U effect on social welfare, the optimal patent extension increases with the length of commercialization lags but decreases with the input intensity of commercialization lags. Finally, we calibrate the model and find that increasing patent breadth reduces the optimal patent extension.