Abstract
This paper analyzes how the effect of intellectual property rights (IPRs) on innovation depends on the distribution of innovation rents across the population. This is done in a product-variety growth model with non-homothetic preferences and endogenous markups in which richer households consume a larger variety of goods than poorer ones. Innovation rents emerge because there are inframarginal superstar innovators who generate more valuable innovations than the marginal innovators do. It is shown that increasing IPR protection increases growth when innovation rents are widely distributed across the population but that it can reduce growth when innovation rents accrue to a minority of rich superstar innovators. The mechanism in the latter case is the following: an increase in IPR protection increases the rents of superstar innovators and therefore inequality, which reduces mass-demand for innovative goods and the incentives to innovate.