Optimal Patent Policy and Wealth Inequality in a Schumpeterian Economy

Chu, Angus and Liao, Chih-Hsing (2023): Optimal Patent Policy and Wealth Inequality in a Schumpeterian Economy.

Abstract

Does wealth inequality affect optimal patent policy? This study develops a Schumpeterian growth model with heterogeneous households to explore this question. The model features a general innovation specification that captures two common specifications as special cases: (a) the knowledge-driven specification that uses R&D labor, and (b) the lab-equipment specification that uses final output for R&D. Under the knowledge-driven specification, all households prefer the same level of patent protection. However, under the lab-equipment specification, wealthier households prefer stronger patent protection, and higher wealth inequality reduces the optimal level of patent protection and economic growth. Under the general innovation specification, strengthening patent protection has an inverted-U effect on innovation, in contrast to the positive effect under the two special cases. Furthermore, wealthier households continue to prefer stronger patent protection, and wealth inequality also reduces optimal patent protection. Therefore, all households preferring the same level of patent protection under the knowledge-driven specification is due to a knife-edge parameter condition. Calibrating the model to US data, we find that eliminating wealth inequality raises the optimal level of patent protection and economic growth.

• Item Type: MPRA Paper
• Language: English
• Keywords: patent policy; innovation; wealth inequality; economic growth
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity

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