The Intersection of Economics and Intellectual Property: Using Patents as a Way to Measure an Economy’s Level of Development

Post Authored by Kyle Dinse 

The field of economics often relies on documents created by the legal field in order to analyze phenomena that would otherwise be immeasurable. More often than not, economists will want to measure concepts such as happiness, intelligence, or the level of technological advancement. Since these concepts cannot be quantitatively measured without the help of extensive neuroscience, proxy measurements are used in their place. These proxy measurements are referred to as instruments and allow for related concepts to be measured as a stand-in for the immeasurable. In order to measure the level of technological progression in an economy, many researchers will use the number of patents created per year, because it provides a clear, objective number to use.

Using instruments is both an art and a science. It requires a certain level of creativity, but it also requires that the instruments are used accurately. While the relationship between technology and patents is easy to see, it may also pose a few problems. There are two main rules for working with instruments. The first is that the instrument must be related to the concept being measured, and the second is that it cannot relate to any other measurement within the same formula. While more formal definitions exist, they require in-depth mathematics that is beyond the scope of this article. The proper use and testing of instruments are also very math-centric, but the basic concept behind them is simple enough. Other issues can arise, such as the prominence of non-essential patents, that can interfere with the measurement because they tend to skew the data by inflating the number of patents. [1]

Patents are a very common instrument. They work very well for determining the level of technology and similar concepts. More productive and research-oriented economies have higher numbers of patents filed than economies that struggle in these areas. Other fields of intellectual property can also be used, but it is not as common. If someone wanted to measure the overall level of creativity of society, they may choose to look at the number of copyrights. While this seems to be appropriate, it may be that societies that lack a proper legal structure may be just as creative but cannot as easily file copyright registrations. The use of legal instruments also extends outside the field of intellectual property. The number of criminal court cases measured against the level of crime could be an instrument to predict the effectiveness of local law enforcement, or the number of divorce cases could be used to measure happiness in marriages.

The construct and nature of the legal field allow for the creation of documents and cases that can be measured and applied in various ways. While they can be measured directly, this indirect use of instruments allows for further insights that are otherwise impossible. Even the presence of a strong legal system has many economic implications, such as strong infrastructure or a well-educated populace. This is particularly interesting for developmental economists because it allows for data to be gathered from regions that may not have other data available. Certain countries have reputations for posting bad economic data, so having data from their respective legal system allows for trustworthy data and insight. By no means is this an exact science, but it does allow for additional insight that is not possible or available otherwise.

For additional readings on the subject, a few papers speaking on the intersecting topic of intellectual property and economics can be found below. These papers tend to focus more on economics but is a good starting point to determine the relationship between intellectual property and economics.

[1] Daniel Quint, Pooling with Essential and Nonessential Patents, 6 Am. Econ. J.: Microeconomics, 23, 23-57 (2014).

Additional readings:

Dietmar Harhoff et al., Citation Frequency and the Value of Patented Inventions, 81 The Rev. of Econ. and Stat.,  511 (1999).

Richard A. Posner, Intellectual Property: The Law and Economics Approach, 19 The J. of Econ. Perspectives, 57 (2005).

Richard A. Posner, The Law & Economics of Intellectual Property, 131 Daedalus, 5 (2002).

About the Author:

Kyle Dinse HeadshotKyle is currently pursuing his MA in Economics from the University of Wisconsin at Milwaukee. He concentrates his economic studies primarily in the areas of development and microeconomics. He is also interested in the areas of green energy and sustainability. In addition to the master’s degree in economics he will be receiving this Winter 2019, Kyle also has a background in biology that he likes to incorporate into his work. Post-graduation, Kyle intends to move to Chicago and pursue a career in economics.


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