Intellectual property rights protection in the presence of exhaustible resources

Abstract

We study the role of intellectual property rights (IPR) protection in the presence of exhaustible resources. Because resource scarcity is a constraint on growth, one may conjecture that IPR protection should be strong to stimulate research and development activities and to sustain perpetual growth. However, we show that IPR protection does not always need to be strengthened as the economy becomes more resource intensive. Furthermore, we derive the welfare-maximizing strength of IPR protection, and show that it increases in the presence of exhaustible resources. Therefore, our results suggest that ignoring exhaustible resources may result in inefficient innovation policies.