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Journal of Economics

, Volume 125, Issue 1, pp 27–49 | Cite as

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

  • Darong Dai
Article

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 

JEL Classification

O12 O30 

Notes

Acknowledgements

I would like to thank the editor, Giacomo Corneo, and two anonymous referees for their very helpful comments and suggestions. Any remaining errors are my own responsibility.

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Copyright information

© Springer-Verlag GmbH Austria, part of Springer Nature 2017

Authors and Affiliations

  1. 1.Department of EconomicsTexas A&M UniversityCollege StationUSA

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