On the Optimality of the Patent Renewal System

The patent system is mainly a renewal system: the patent life is chosen by the patentee in return for fees. I ask whether such a system can be justified by asymmetric information on costs and benefits of research. In such a model I show that renewal mechanisms (possibly with subsidies) are equivalent to direct revelation mechanisms and therefore cannot be improved on, regardless of the objective function. Under plausible circumstances, patents should have a uniform life, rather than varying in length, as typically occurs under a renewal system.