1. Clearings and Thickets: Intellectual Property Law and Growth Economics by Robert Cooter and Aaron Edlin European Association of Law and Economics 23 September 2011. Paper revised September 22, 2011. This paper is based on a chapter in a book manuscript tentatively entitled Law and Growth Economics. The first version of this paper was first presented at the Ratio Research Colloquium on “Property Rights, the Conditions for Enterprise and Economic Growth”, StockholmJune 16-18, 2011.

2. 1 Launch ------------------- Monopoly +7 2 Imitation ------------------- Imperfect Competition +4 3 Equilibrium ------------------- Perfect Competition 0 Time ------------------- Market Structure & Net profits 0 Development ------------------- -8 Figure 2.1. Payoff to Innovator With Property Right

3. 1 Launch ------------------- Monopoly +7 2 Equilibrium ------------------- Perfect Competition 0 3 Equilibrium ------------------- Perfect Competition 0 Time ------------------- Market Structure & Net profits 0 Development ------------------- -8 Figure 2.2. Payoffs With Developer’s Disadvantage and Without Property Right

4. not ownable a b β β β` Figure 2.4. Future Innovations

5. i i` Innovations Arrayed by Profitability From High on Left to Low on Right R $ C R` Figure 2.5. Effect of High and Low Revenues on Development of Innovations

6. Direction of Monopoly Transfers Consumption or Production (static) Innovation (dynamic) Faster growth  = Innovation (dynamic) Slower growth  = Innovation (dynamic) Effects of IP on Growth

7. Rate of Innovation Duration of Patent in Years 0 5 10 15 20 A B C Figure 2.6. Rate of Innovation and Patent Length

8. Conclusion: Which ownership rules for IP maximize the pace of economic innovation? A. Welfare Overtaking => Law and policy for intellectual property should maximize the rate of sustained growth, not balance growth against other values. B. Two opposing effects of stronger intellectual property rights on growth 1. transfer from static (consumption &production) to dynamic (innovation) => increases venture profits & growth 2. dead-weight loss and licensing costs in dynamic activities => decreases venture profits & growth C. Prescription: “Stronger intellectual property rights for an innovation in a clearing and weaker rights for innovations in a thicket.”