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Effects of Patent Policy on Income and Consumption Inequality in an R&D-Growth Model

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  • Chu, Angus C.

Abstract

What are the effects of strengthening patent protection on income and consumption inequality? To analyze this question, this paper incorporates heterogeneity in the initial wealth of households into a canonical quality-ladder growth model with endogenous labor supply. In this model, I firstly show that the aggregate economy always jumps immediately to a unique and stable balanced-growth path. Given the balanced-growth behavior of the aggregate economy and an exogenous distribution of initial wealth, I then show that the endogenous distribution of assets in subsequent periods is stationary and equal to its initial distribution. The model predicts that strengthening patent protection increases (a) economic growth by stimulating R&D investment and (b) income inequality by raising the return on assets. However, whether it also increases consumption inequality depends on the elasticity of intertemporal substitution. If and only if this elasticity is less (greater) than unity, strengthening patent protection increases (decreases) consumption inequality. For standard parameter values, strengthening patent protection leads to a larger increase in income inequality than consumption inequality.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10168.

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Date of creation: Aug 2008
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Handle: RePEc:pra:mprapa:10168
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Keywords: endogenous growth; heterogeneity; income inequality; patent policy;

Other versions of this item:

Find related papers by JEL classification:
  • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
  • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
  • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital

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Cited by:

  1. Chu, Angus C., 2009. "Macroeconomic Effects of Intellectual Property Rights: A Survey," MPRA Paper 17342, University Library of Munich, Germany.
  2. Guido Cozzi & Silvia Galli, 2012. "Sequential R&D and Blocking Patents in the Dynamics of Growth," Working Papers 2012_02, Durham University Business School.
  3. Chu, Angus C. & Peng, Shin-Kun, 2008. "Effects of TRIPS on Growth, Welfare and Income Inequality in an R&D-Growth Model," MPRA Paper 10956, University Library of Munich, Germany.
  4. Asteriou, Dimitrios & Dimelis, Sophia & Moudatsou, Argiro, 2014. "Globalization and income inequality: A panel data econometric approach for the EU27 countries," Economic Modelling, Elsevier, vol. 36(C), pages 592-599.
  5. Guido Cozzi & Silvia Galli, 2009. "Upstream Innovation Protection: Common Law Evolution and the Dynamics of Wage Inequality," Working Papers 2009_20, Business School - Economics, University of Glasgow.
  6. Sorek, Gilad, 2011. "Patents and quality growth in OLG economy," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 690-699.
  7. Chu, Angus C. & Peng, Shin-Kun, 2011. "International intellectual property rights: Effects on growth, welfare and income inequality," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 276-287, June.

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