A Model of Research, Patenting, and Technological Change

I use the aggregate behavior of three indicators of technology (employment of research scientists and engineers, patented inventions, and total factor productivity) to identify a plausible model of endogenous technological change. In the US (as well as in other developed countries) research employment and total factor productivity have both grown, while the rate of patenting has remained relatively flat. One interpretation of these facts is that: (i) patentable inventions are becoming increasingly difficult to discover as the quality of techniques in use increases, (ii) inventions which are patented represent percentage improvements on techniques currently in use, and (iii) the size of the economy is growing, making patents increasingly valuable and justifying increased research efforts devoted to discovering them. This paper presents a general equilibrium search theoretic model of invention which formalizes this view.