Effects of patent policy on growth and inequality: exogenous versus endogenous quality improvements

This study explores the implications of patent protection on growth and inequality under exogenous versus endogenous quality improvements. Our analysis shows that the effects of strengthening patent protection under an endogenous innovation size can be quite different from those under an exogenous innovation size. Under our calibrated parameter values, we find that strengthening patent protection promotes economic growth, raises income inequality, and decreases consumption inequality under exogenous quality improvements. However, in the case of endogenous quality improvements, strengthening patent protection generates an inverted-U effect on economic growth; both income inequality and consumption inequality decrease with the strength of patent protection.