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


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.


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

JEL Classification Numbers

D2 D7 O3 O4 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Anbarci N., Skaperdas S., Syropoulos C. (2002) Comparing bargaining solutions in the shadow of conflict: how norms against threats can have real effects. J. Econ. Theory 106, 1–16CrossRefGoogle Scholar
  2. Aghion P., Howitt P. (1992). A model of growth through creative destruction. Econometrica 60, 323–352CrossRefGoogle Scholar
  3. Arrow K. (1962). Economic welfare and the allocation of resources for inventions. In: Nelson R. (eds). The Rate and Direction of Inventive Activity. Princeton University Press, PrincetonGoogle Scholar
  4. Baumol W. (1993) Entrepreneurship, Management, and the Structure of Payoffs. The MIT Press, CambridgeGoogle Scholar
  5. Cohen W., Goto A., Nagata A., Nelson N., Walsh J. (2002) R&D spillovers, patents and the incentives to innovate in Japan and the United States. Res. Policy 31, 1349–1367CrossRefGoogle Scholar
  6. Dinopoulos E., Segerstrom P. (1999) A Schumpeterian model of protection and relative wages. Am. Econ. Rev. 89, 450–472CrossRefGoogle Scholar
  7. Dinopoulos E., Sener F. (2006). New directions in Schumpeterian growth theory. In: Hanusch H., Pyka A. (eds). Edgar Companion to Neo Schumpeterian Economics. Edward Elgar Publishing, LondonGoogle Scholar
  8. Dinopoulos E., Syropoulos C. (1998). International diffusion and appropriability of technological expertise. In: Baye M. (eds). Advances in Applied Microeconomics: Contests. JAI Press, Stamford CTGoogle Scholar
  9. Dinopoulos, E., Syropoulos, C. Innovation and rent protection in the theory of Schumpeterian growth. Working Paper, Department of Economics, University of Florida (2003)Google Scholar
  10. Eisenhardt K.M., Brown S.L. (1998) Time pacing: competing in markets that won’t stand still. Harvard Bus. Rev. 76, 59–69Google Scholar
  11. Grossman G., Helpman E. (1991) Innovation and growth in the global economy. The MIT Press, CambridgeGoogle Scholar
  12. Howitt P. (1999) Steady endogenous growth with population and R&D inputs growing. J. Polit. Econ. 107, 715–730CrossRefGoogle Scholar
  13. Jones C. (1995) Time-series tests of endogenous growth models. Q. J. Econ. 110, 495–525CrossRefGoogle Scholar
  14. Jones C. (1999) Growth: with or without scale effects. Am. Econ. Rev. Pap. Proc. 89, 141–144Google Scholar
  15. Kortum S. (1997) Research, patenting, and technological change. Econometrica 65, 1389–1419CrossRefGoogle Scholar
  16. Lerner J. (1995) Patenting in the shadow of competitors. J. Law Econ. 38, 463–496CrossRefGoogle Scholar
  17. Levin R.C., Klevorick A.K., Nelson R.R., Winter S.G., Gilbert R., Griliches Z. (1987) Appropriating the returns of industrial R&D. Brookings Pap. Econ. Activity 1987, 783–820CrossRefGoogle Scholar
  18. Malliaris, A.G., Brock, W. Stochastic methods in economics and finance. North Holland, Amsterdam (1982)Google Scholar
  19. Parente S., Prescott E. (1999) Monopoly rights: a barrier to riches. Am. Econ. Rev. 89, 1216–1233CrossRefGoogle Scholar
  20. Parente S., Prescott E. (2000) Barriers to riches. The MIT Press, CambridgeGoogle Scholar
  21. Parente, S., Zhao, R. Slow development and special interests. Working Paper, Department of Economics, University of Illinois (2005)Google Scholar
  22. Pecorino P. (1995) Review of Baumol, W., Entrepreneurship, management, and the structure of payoffs (1993). Public Choice 82, 389–392Google Scholar
  23. Romer P. (1990) Endogenous technological change. J. Polit. Econ. 98, S71–S102CrossRefGoogle Scholar
  24. Rockett K. (1990) Choosing the competition and patent licensing. RAND J. Econ. 21, 161–171CrossRefGoogle Scholar
  25. Schumpeter J. (1934) The theory of economic development. Oxford University Press, OxfordGoogle Scholar
  26. Segerstrom P. (1998) Endogenous growth without scale effects. Am. Econ. Rev. 88, 1290–1310Google Scholar
  27. Segerstrom P., Anant T.C.A., Dinopoulos E. (1990) A Schumpeterian model of the product life cycle. Am. Econ. Rev. 80, 1077–1091Google Scholar
  28. Skaperdas S. (1996) Contest success functions. Econ. Theory 7, 283–290Google Scholar
  29. Skaperdas S., Syropoulos C. (2001) Guns, butter, and openness: on the relationship between security and trade. Am. Econ. Rev. Pap. Proc. 91, 353–357Google Scholar
  30. Skaperdas S., Syropoulos C. (2002) Insecure property and the efficiency of exchange. Econ. J. 112, 133–146CrossRefGoogle Scholar
  31. Stolper W., Samuelson P. (1941) Protection and real wages. Rev. Econ. Stud. 9, 58–73CrossRefGoogle Scholar
  32. Tornell A. (1997) Economic growth and decline with endogenous property rights. J. Econ. Growth 2, 219–250CrossRefGoogle Scholar
  33. Tornell A., Lane P. (1999) The voracity effect. Am. Econ. Rev. 89, 22– 46CrossRefGoogle Scholar
  34. Van Long N., Sorger G. (2006) Insecure property rights and growth: the roles of appropriation costs, wealth effects, and heterogeneity. Econ. Theory 28, 512–529CrossRefGoogle Scholar
  35. Young A. (1998) Growth without scale effects. J. Polit. Econ. 106, 41–63CrossRefGoogle Scholar

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

Personalised recommendations