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Inequality of opportunity, inequality of effort, and innovation

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  • Alessandro Spiganti

Abstract

Is inequality good or bad for innovation? I study an endogenous growth model with heterogeneous agents; due to credit frictions, inequalities in wealth lead to misallocation of talent. A more unequal reward scheme incentivises innovation in any given period, but it leads to a more unequal distribution of opportunities that may exacerbate the misallocation of talent in the next period. Empirically, I show that the flow of patents in a US state is negatively correlated with inequality of opportunity, but positively with inequality of effort; and that the elimination of state death taxes, as a proxy for an increase in the financial incentives towards risky activities, had a positive short-term but a negative longterm effect on the growth rate of patents.

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  • Alessandro Spiganti, 2020. "Inequality of opportunity, inequality of effort, and innovation," Economics Working Papers MWP 2020/02, European University Institute.
    • Handle: RePEc:eui:euiwps:mwp2020/02
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    Cited by:

    1. Salvatore Lo Bello & Iacopo Morchio, 2022. "Like father, like son: Occupational choice, intergenerational persistence and misallocation," Quantitative Economics, Econometric Society, vol. 13(2), pages 629-679, May.
    2. Alessandro Spiganti, 2022. "Wealth Inequality and the Exploration of Novel Alternatives," Working Papers 2022:02, Department of Economics, University of Venice "Ca' Foscari".

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    More about this item

    Keywords

    Occupational Choices; Adverse Selection; Bequests; Theil's Index; Death Taxes;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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