Growth and welfare effects of intellectual property rights when consumers differ in income

This paper analyzes how changing the expected length of intellectual property right (IPR) protection affects growth and the welfare of rich and poor consumers. The analysis is based on a product-variety model with non-homothetic preferences and endogenous markups in which, in accordance with empirical evidence, rich households consume a larger variety of goods than poorer ones. Unlike in models with homothetic preferences, the effect of intellectual property (IP) protection on growth depends on the distribution of income: when the length of IP protection is (uniformly) increased, growth increases when there is inequality among households consuming IP protected goods, but stays constant when there is no such inequality. When wealth is unequally distributed, reducing the length of IP protection for new but not for previously issued IPRs can increase growth. In the case where increasing the length of IP protection increases growth, poor households prefer a shorter length of protection than richer ones, although they consume fewer IP protected goods.