Endogenous Recombinant Growth Through Market Production of Knowledge and Intellectual Property Rights

Abstract

We analyze the relationship between economic growth, knowledge production and intellectual property rights. Economists and historians underline different aspects as possible causes of knowledge accumulation; the former stress the role of incentive mechanisms while the latter the autonomous progress of science. We construct a unified theory allowing for the presence of markets and the autonomous accumulation of knowledge by introducing intellectual property right policies in an endogenous recombinant growth model. In this framework a benevolent government should reallocate resources from the final to the knowledge production sector and implement a tax-subsidy scheme in order to correct for the inefficiencies generated by the process. We characterize the (asymptotic) steady state equilibrium, and some properties of the transitional path. We show that if certain conditions are met, then the economy will converge to its (asymptotic) balanced growth path, and along such a path growth will be independent of the government policy; conversely, transition dynamics and the capital to knowledge ratio are affected by the choice of the tax-subsidy parameter. We then quantitatively analyze the effect of different policy interventions on welfare, and show that welfare is increasing in the policy parameter and a strictly positive policy level may be required to avoid stagnation. JEL Classification Numbers: K11; L16; L43; O31; O34; O41

Dynamics and welfare in recombinant growth models with intellectual property rights: A computational method

“…In order to do so, our computational procedure allows to approximate the complete transition path of the continuous time, recombinant-type, endogenous growth model introduced by Marchese et al (2014). Marchese et al (2014) extend the Tsur and Zemel's (2007) continuous time version of the original Weitzman's (1998) growth model in order to introduce a basic IPRs system and investigate the relationship between IPRs policy and welfare in a context of recombinant knowledge creation.…”

“…In order to do so, our computational procedure allows to approximate the complete transition path of the continuous time, recombinant-type, endogenous growth model introduced by Marchese et al (2014). Marchese et al (2014) extend the Tsur and Zemel's (2007) continuous time version of the original Weitzman's (1998) growth model in order to introduce a basic IPRs system and investigate the relationship between IPRs policy and welfare in a context of recombinant knowledge creation. In such a framework knowledge does not evolve only because of profit seeking behavior (as traditionally discussed in the growth literature; see Arrow, 1962, or Romer, 1990), but also because of its autonomous progress driven by social interaction.…”

“…A critical aspect of such an approach consists of computing the value of consumption along the whole transitional dynamic path. As shown in Marchese et al (2014) and similarly in Privileggi (2010), we need to distinguish between three different kind of trajectories: those occurring along a characteristic curve labeled as 'turnpike', those outside the turnpike but eventually converging to the turnpike, and those never converging to the turnpike but ending up in stagnation. Because such types of transitional dynamics are tough objects to deal with, we rely on a wide range of numerical techniques in order to quantitatively assess different consumption paths and the social welfare they generate.…”

“…In Section 2 we briefly recall the literature closely related to the recombinant approach to knowledge accumulation. Section 3 introduces the extended recombinant growth model (a more detailed discussion on the economic implications of the model can be found in Marchese et al, 2014) and discusses short and long-run equilibria and the eventual convergence towards an asymptotic balanced growth path equilibrium. Sections 4-6 are the core of this paper, where we present a computational approach to fully analyze all types of transition dynamics associated to different IPRs policy regimes.…”

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AbstractWe consider the extended continuous time endogenous recombinant growth model with a basic IPRs system introduced by Marchese et al (2014). In order to analyze the effect on social welfare of different IPRs policy regimes, we must carefully study the transition dynamics associated to different values of the IPRs policy parameter.

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