We build a model of R&D-based growth in which the discovery of higher-quality products is governed by sequential stochastic innovation contests. We term the costly attempts of incumbent firms to safeguard the monopoly rents from their past innovations rent-protecting activities. Our analysis (1) offers a novel explanation of the observation that the difficulty of conducting R&D has been increasing over time, (2) establishes the emergence of endogenous scale-invariant long-run innovation and growth, and (3) identifies a new structural barrier to innovation and growth. We also show that 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. © Springer-Verlag 2007.
CITATION STYLE
Dinopoulos, E., & Syropoulos, C. (2007). Rent protection as a barrier to innovation and growth. Economic Theory, 32(2), 309–332. https://doi.org/10.1007/s00199-006-0124-4
Mendeley helps you to discover research relevant for your work.