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This paper theoretically analyses the growth and welfare effects of R&D subsidy and Intellectual Property Rights protection in the model of product variety-based endogenous innovation. Also, for growt...
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This paper theoretically analyses the growth and welfare effects of R&D subsidy and Intellectual Property Rights protection in the model of product variety-based endogenous innovation. Also, for growth and welfare maximization, this paper discusses the optimality of R&D subsidy and IPR protection and their relative effectiveness as well as the substitutability for each other. The main results are as follows : for growth maximization, there is an optimal level of IPR protection, for which R&D subsidy is substitutable, but the increase in R&D subsidy is always growth-enhancing, so its growth-enhancing level does not depend on IPR protection. On the other hand, for welfare maximization, the optimal levels of both R&D subsidy and IPR protection exist respectively, and they are substitutable for each other. In summary, the increase in both R&D subsidy and IPR protection hurts both growth and welfare. Regarding relative effectiveness, R&D subsidy is argued to be more effective than IPR protection for growth maximization but IPR protection is more effective than R&D subsidy for welfare maximization.
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Abstract