Towards a Dynamic (Schumpeterian) Welfare Economics

For an economy where knowledge plays an increasingly important role in shaping its dynamics, economics needs a dynamic (Schumpeterian) welfare theory. This paper sketches the role of knowledge in an economy and argues that a static Paretian welfare economics is inadequate, or at least needs to be supplemented. As suggested by the work of Schumpeter, a dynamic welfare economics acknowledges the role of knowledge. In a dynamic welfare economics, I suggest, different costs of communication are central, indicating that knowledge may not be readily diffused or exchanged. Recent developments in Intellectual Property Right (IPR) law are evaluated to determine the extent to which they affect communication costs and thus future economic welfare.