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Economic Theory

, Volume 32, Issue 2, pp 309–332 | Cite as

Rent Protection as a Barrier to Innovation and Growth

  • Elias Dinopoulos
  • Constantinos SyropoulosEmail author
Research Article

Abstract

We build a model of R&D-based growth in which the discovery of higher-quality products is governed by sequential stochastic innovation contests. We term the costly attempts of incumbent firms to safeguard the monopoly rents from their past innovations rent-protecting activities. Our analysis (1) offers a novel explanation of the observation that the difficulty of conducting R&D has been increasing over time, (2) establishes the emergence of endogenous scale-invariant long-run innovation and growth, and (3) identifies a new structural barrier to innovation and growth. We also show that long-run growth depends positively on proportional R&D subsidies, the population growth rate, and the size of innovations, but negatively on the market interest rate and the effectiveness of rent-protecting activities.

Keywords

Schumpeterian growth Scale effects R&D Innovation contests Barriers to innovation 

JEL Classification Numbers

D2 D7 O3 O4 

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Copyright information

© Springer-Verlag 2006

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of FloridaGainesvilleUSA
  2. 2.Department of Economics and International Business, LeBow College of BusinessDrexel UniversityPhiladelphiaUSA

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