In the context of a patent race, if innovation is sequential and there is no cross licensing, patents offer the patent owner monopoly control over his innovation, al lowing him to block all relative future R&D. Against this background, this thesis shows that patent protection can foster innovation because it offers the innovator an incentive to innovate. However, the monopoly that the patent holder enjoys can lead him to rest on his laurels, reducing his innovative effort and, at the same time, force some innovators to abstain from innovating, reducing knowledge spillovers. The above can lead to a humped shaped relationship between patent protection and output growth. Bearing the above in mind, this thesis further engages in showing that in economies with restricted innovative capabilities a central planner may find it opti mal to offer limited patent protection compared to very innovative economies. In a similar fashion, a firm working on a new technological paradigm may find it opti mal to allow competitors to free ride on its technology, in order to benefit from the extended knowledge spillovers that its competitors will generate.