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Rent protection as a barrier to innovation and growth
Please use this identifier to cite or link to this item:
http://hdl.handle.net/1860/1882
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| 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
http://hdl.handle.net/1860/1882 |
| Appears in Collections: | Faculty Research and Publications (Economics & International Business)
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