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Please use this identifier to cite or link to this item: http://hdl.handle.net/1860/1882

Title: Rent protection as a barrier to innovation and growth
Authors: Dinopoulos, Elias
Syropoulos, Constantinos
Keywords: Schumpeterian growth;scale effects;R&D;innovation contests;barriers to innovation
Issue Date: Aug-2007
Publisher: Springer Science + Business Media
Citation: Economic Theory, 32(2), pp. 309-332.
Abstract: This paper builds a model of R&D-based growth in which the discovery of higher-quality products is governed by sequential stochastic innovation contests. Incumbent firms producing state-of-the-art-quality products expend resources in activities to protect their rents; challengers raise claims to these rents by engaging in R&D to discover better-quality products. Rent-protecting activities create barriers to innovation and increase the expected duration of an incumbent’s monopoly power; R&D investments reduce it. The model (i) offers a novel explanation for the observation that the difficulty of conducting R&D has been increasing over time, (ii) generates endogenous scale-invariant long-run innovation and growth, and (iii) identifies a new structural barrier to innovation and growth. In the present model, 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. The presence of rent-protecting activities causes the market rate of innovation to rise by amplifying the welfare distortion associated with the intertemporal spillover effect.
URI: http://dx.doi.org/10.1007/s00199-006-0124-4
Appears in Collections:Faculty Research and Publications (Economics & International Business)

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