How are patent decisions affected by environmental regulation?

Abstract

This paper examines how the presence of environmental regulation may induce shorter or longer patents. In the absence of environmental regulation, the patent office faces a well-known tradeoff: a longer patent yields a welfare benefit from inducing more R&D investment, but generates a welfare loss from allowing a longer monopoly during the patent period. When environmental policy is present, we show that the welfare loss is emphasized (ameliorated) when the environmental agency is less (more) flexible than the patent office, thus inducing shorter (longer) patents. We also consider green innovations, showing that environmental policy becomes less stringent, and patent decisions approach those in the absence of regulation.