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Dynamic effects of patent policy on innovation and inequality in a Schumpeterian economy

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Abstract

This study explores the dynamic effects of patent policy on innovation and income inequality in a Schumpeterian growth model with endogenous market structure and heterogeneous households. We find that strengthening patent protection has a positive effect on economic growth and a positive or an inverted-U effect on income inequality when the number of differentiated products is fixed in the short run. However, when the number of products adjusts endogenously, the effects of patent protection on growth and inequality become negative in the long run. We also calibrate the model to US data to perform a quantitative analysis and find that the long-run negative effect of patent policy on inequality is much larger than its short-run positive effect. This result remains consistent with our empirical finding from a panel vector autoregression.

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Authors and Affiliations

  1. Management School, University of Liverpool, Liverpool, UK

    Angus C. Chu

  2. Faculty of Economics, Aichi University, Nagoya, Japan

    Yuichi Furukawa

  3. School of Business and Management, Queen Mary University of London, London, UK

    Sushanta Mallick

  4. Department of Economics, Duke University, Durham, USA

    Pietro Peretto

  5. China Center for Economic Studies, School of Economics, Fudan University, Shanghai, China

    Xilin Wang

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  1. Angus C. Chu
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  2. Yuichi Furukawa
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  3. Sushanta Mallick
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  4. Pietro Peretto
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  5. Xilin Wang
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Correspondence to Pietro Peretto.

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The authors would like to thank Haichao Fan, the Associate Editor and two anonymous Referees for helpful comments. Wang gratefully acknowledges financial support from the China Postdoctoral Science Foundation (Grant No. 2020M681127) and Shanghai Super Postdoctoral Incentive Plan. The usual disclaimer applies.

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Chu, A.C., Furukawa, Y., Mallick, S. et al. Dynamic effects of patent policy on innovation and inequality in a Schumpeterian economy. Econ Theory 71, 1429–1465 (2021). https://doi.org/10.1007/s00199-021-01357-6

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