Private Innovation and Wealth Inequality

Wealth inequality has risen sharply in recent decades. We study how restricted access to private-firm innovation contributes to this rise using a structural model of wealth accumulation with heterogeneous returns. Using a new long-run measure of innovation rents that includes both public and private firms, we document a pronounced shift in value creation toward private firms, whose equity is concentrated among high-wealth individuals. Calibrated to the 1979 wealth distribution, the model implies that exclusive access to private-firm innovation rents can account for between half and two-thirds of the subsequent increase in the top 1% wealth share.