Inequality of Opportunity, Inequality of Effort, and Innovation

Event Date: 7 October 2020

Speaker: Alessandro Spiganti, European University Institute

Time: 4.00-5.00pm

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 long-term effect on the growth rate of patents.

Published: 8 April 2021