The Macroeconomic Implications of R\&D Ownership 

Revise & Resubmit at Journal of Monetary Eocnomics, previously circulated as The Distribution of Innovation across Firms

Abstract: This paper examines how R\&D ownership affects inventor incentives, innovation allocation, and aggregate productivity. I develop a general equilibrium model of endogenous growth addressing how inventors self-select into firms of different sizes because the equilibrium equity-wage contract depends on how much firm value is tied to the inventor's own effort. The model predicts that (1) when inventors retain a larger share of R\&D, they work harder; (2) when firms own R\&D, incentives are diluted and inventors exert less effort, especially in large firms ; and (3) the inventor distribution across firm sizes depends systematically on the ownership regime. A counterfactual exercise shows how alternative U.S. innovation ownership policies would reallocate innovation and alter long-run growth. Quantitatively, R\&D ownership has a nonlinear impact on the aggregate growth rate. When inventor R\&D ownership improves from the baseline 2\% to 10\%, the growth rate increases by 0.57\%. When the inventor holds 50\% of the R\&D ownership, the growth rate improves by 52.14\%. Meanwhile, shifting statutory ownership to 10\% and to 50\% causes the share of innovations produced by small firms to drop by 39.53\% and 100\%, respectively.