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Patent, Inequality and Innovation-Driven Growth

  • Hatipoglu, Ozan

When people have hierarchic preferences inequality affects innovation-driven growth through the implied demand distribution over new goods. The paper examines the demand path of the firm through its life-cycle and analyzes the efficiency of dynamic resource allocation under different inequality scenarios. Unlike previous models of inequality and demand induced innovation, the innovators are protected by patents of finite length. Longer patents increase the profitability of an innovation because they reduce the effect of inequality by increasing the likelihood that the firms benefit from a future demand jump in sales to the poor. This result does not hold, however, when initial inequality is low or the purchasing power of the poor is high. Moreover, reducing inequality does not increase growth as long as the amount of redistribution is below a threshold level.

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File URL: https://mpra.ub.uni-muenchen.de/7855/1/MPRA_paper_7855.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7855.

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Date of creation: 20 Mar 2008
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Handle: RePEc:pra:mprapa:7855
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  18. Kiminori Matsuyama, 2000. "A Ricardian Model with a Continuum of Goods under Nonhomothetic Preferences: Demand Complementarities, Income Distribution, and North-South Trade," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1093-1120, December.
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