Endogenous economic growth with disembodied knowledge

Abstract

AbstractMainstream endogenous growth models assume that new knowledge is embodied into either new intermediate or final goods, monopolistically supplied by the patent holder. Recent technological progress, however, often gives rise to pure intellectual contents, such as software codes or business models, directly usable in the production of final goods. Once a content of this type has been produced, it is in fixed supply, that is, the inventor can only rent it out (or sell it) or not; hence, the quantity restriction typical of monopoly cannot arise, while competition is viable. We show that, however, as long as the inventor owning a patent can control through license activation devices the access to the intellectual content of the workers using her invention in the final goods production, monopolistic exploitation becomes viable and will occur. It turns out that in this framework, the income share of labor is smaller than in the Lab‐Equipment economy, which represents the setting closest to our model. Moreover, with elastic labor supply labor employment is also negatively impacted. This implies that some standard public policies devised for correcting inefficiencies in development may perform poorly in this framework.