Endogenous economic growth with disembodied knowledge

• Author: Carla Marchese,Fabio Privileggi
• Date: 01 June 2018
• DOI: http://doi.org/10.1111/jpet.12284
• Published date: 01 June 2018

Received: 26 September 2017 Accepted: 7 November2017

DOI: 10.1111/jpet.12284

ARTICLE

Endogenous economic growth with disembodied

knowledge

Carla Marchese1Fabio Privileggi2

1InstitutePOLIS - DiGSPES, Università del

PiemonteOrientale “Amedeo Avogadro”

2Departmentof Economics and Statistics

“Cognettide Martiis”, Università di Torino

CarlaMarchese, Institute POLIS - DiGSPES,

Universitàdel Piemonte Orientale “Amedeo

Avogadro”,ViaCavour 84, 15121 Alessandria,

Italy(carla.marchese@uniupo.it).

FabioPrivileggi, Department of Economics and

Statistics“Cognetti de Martiis”,Università di

Torino,Lungo DoraSiena 100 A, 10153 Torino,

Italy(fabio.privileggi@unito.it).

CarlaMarchese acknowledges the financial

supportfrom Università del Piemonte Orientale.

Mainstream endogenous growth models assume that new knowl-

edge 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 produc-

tion 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 (orsell

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

herinvention 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.

Thisimplies that some standard public policiesdevised for correcting

inefficiencies in development mayperform poorly in this framework.

1INTRODUCTION

In the recent past one way of highlighting the pace of technological progress was to quote the Moore law, describ-

ing the expected improvements in a widely used intermediate good, the semiconductor. Nowadays, however, tech-

nological progress appears largely disembodied, and characterized by the supply of new immaterial goods such as

DNA sequences, software codes, computer programs, Internet applications, business models, and so on, which are

patentable1and directly usable in the final goods production, without having to be incorporated into capital or inter-

mediate inputs. This feature does not fit well into standard endogenous growth models,2which assume that, in a sys-

tem with intellectual property rights (IPRs), the successful inventor has the opportunity of becoming the sole supplier

1Thistrend for the United States can be dated back to 1998, when in the so-called State Street Bank case, a business method was declared patentable. Many

other similar rulings followed with respect to software. A 2014 Supreme Court decision stated that the claim for a patent must contain more than abstract

ideas of general character; it must be based, e.g., on unconventionalsteps that confine it to a particular useful application. For patentability in general, see

Eckertand Langinier (2013).

2Like,e.g., in Romer (1990) and the so-called Lab-Equipment model in chapter 13 of Acemoglu (2009).

Journal of Public Economic Theory.2018;20:437–449. wileyonlinelibrary.com/journal/jpet c

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