A model of corporate intelligence, secrecy and economic growth

This paper plugs informal intellectual property rights (IPR) and secrecy into a scale-invariant Schumpeterian model of growth. In doing so, the paper envisages the existence of two-stage R&D races in which firms initially introduce a new way to produce new quality products, and then try to refine it in order to make the innovation suitable for patent application. In the passage from the first stage to the second, research firms keep the discovery secret, but face a positive probability that some sensitive information can outflow the firm because of corporate intelligence. The model displays a unique steady state, which is then used to study the long-run effects of strengthening secrecy protection. Stronger secrecy protection is found to be welfare-improving and beneficial for innovation and growth, even in the case in which research firms can prevent corporate-intelligence firms from catching firm's sensitive information through information protecting activities.