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Human Capital Dispersion and Incentives to Innovate

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  • Maurizio Iacopetta

    ()
    (Observatoire Français des Conjonctures Économiques)

Abstract

Do policies that alter the allocation of human capital across individuals affect the innovation capacity of an economy? To answer this question, I extend Romer's (1990) growth model to allow for individual heterogeneity. I find that the value of an invention rises with equality. If skills and talents are evenly distributed, inventions are more widely adopted in production and users are willing to bid a higher price. Therefore, more equality is associated with a larger share of the population employed in the business of invention. However, inventors of an equal society are not as creative as those of an unequal one. As a result an inverted-U curve relating inequality and the innovation rate emerges, indicating that departures from extreme forms of equality or inequality are growth-enhancing. I discuss evidence that agrees with the main implications of the analysis, namely that the market size and the number of inventors are negatively affected by inequality. Finally, a calibration exercise suggests that in recent decades the U.S. has been in the ascending portion of the inequality-growth curve.

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Paper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2010-32.

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Date of creation: Nov 2010
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Handle: RePEc:fce:doctra:1032

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Keywords: human capital; inequality; innovation;

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