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Intellectual property rights and R&D subsidies: are they complementary policies?

Darong Dai ()

Journal of Economics, 2018, vol. 125, issue 1, 27-49

Abstract: Abstract IPR protection and R&D subsidy are simultaneously implemented in many economies. Are they complementary policies for improving the welfare of consumers? We address this question in a dynamic general equilibrium model with innovation-driven growth. Under concave utility, the answer is yes for two cases: (1) the economy does not begin from steady state and the elasticity of intertemporal substitution (EIS) is relatively large; (2) the economy begins from steady state with either a sufficiently small initial consumption and a relatively large EIS or a sufficiently big initial consumption and a relatively small EIS. Under linear utility, the answer is yes if the discounted lifetime utility is finite in equilibrium, no matter the economy begins from the steady state or not. As empirical evidence finds cross-country heterogeneity in EIS, they are not complementary for all economies. We also identify reasonable cases whereby they are substitute policies, so we show when it is not welfare-enhancing to simultaneously implement both policies.

Keywords: Intellectual property right; R&D subsidy; Elasticity of intertemporal substitution; Policy complementarity; Policy substitutability (search for similar items in EconPapers)
JEL-codes: O12 O30 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:kap:jeczfn:v:125:y:2018:i:1:d:10.1007_s00712-017-0580-2