Growth and Welfare Effects of Intellectual Property Rights when Consumers Differ in Income

This paper analyzes how changing the expected length of intellectual property (IP) protection T affects economic growth and the welfare of rich and poor consumers. The analysis is based on a product-variety model with non-homothetic preferences and endogenous markups in which, in accordance with empirical evidence, rich households consume a larger variety of goods than poorer ones. It is shown that growth is independent of T when there is perfect equality and that T can only substantially affect growth when there is a suffcient degree of inequality. When there is inequality, an increase in T that is applied to both new and previously granted innovations increases growth. A reduction in T that affects only new, but not previously granted innovations, can increase growth if wealth inequality is suffciently high. In the case where increasing T increases growth, poorer households prefer a shorter length of protection T than richer ones.