ºÚÁϳԹÏÍø

Feb. 10, 2026

Private markets play a larger role than ever in financing innovation. New research finds that restricted access to private-firm innovation can explain much of the rise in U.S. top wealth inequality since 1980.

Innovation Has Shifted Away From Public Markets

Wealth inequality in the United States has risen sharply over the past four decades. One striking fact often noted is the growing gap between the very wealthy and everyone else. Less discussed is where the value fueling this gap is created.

by Mehran Ebrahimian (SHoF/SSE) and Alexander Ljungqvist (SHoF/SSE) argues that a large part of the answer lies in the shift of innovation from public to private firms.

Between 1979 and 2015, the share of U.S. wealth held by the top 1% rose from 23.2% to 35.8%. Over the same period, private firms’ share of corporate innovation value—measured as the economic value of patents net of R&D costs—increased from 16.5% to nearly 40%. The two series move closely together: their time-series correlation exceeds 90%.



The authors’ core claim is simple but powerful: innovation increasingly happens in firms that most households cannot invest in. As a result, a growing share of economy-wide value creation accrues disproportionately to those already at the top of the wealth distribution.

Measuring Innovation Beyond the Stock Market

To study this link, the authors use a new measure of corporate innovation value that covers both public and private firms from 1975 to 2015.

For public firms, patent values are inferred from stock-market reactions when patents are granted. For private firms, whose shares do not trade, patent values are imputed using detailed patent characteristics such as citations, claims, and technological breadth. Aggregating across firms and subtracting R&D spending yields a measure of net innovation value creation.

On average, net innovation contributes about 2% to annual U.S. wealth growth. Crucially, an increasing share of this value comes from private firms.
This shift is not driven by private firms producing more patents. Their share of patent counts has remained roughly stable at around 30%. Instead, private firms’ patents have become more valuable and are produced at lower R&D cost, making them the dominant source of net innovation value.

Who Benefits From Private Innovation?

Ownership of private businesses is highly concentrated. Survey data show that the top 1% consistently own the majority of private-business equity, while the bottom 90% hold less than 10%.

To quantify how this concentration affects wealth dynamics, the authors build a structural model of wealth accumulation with heterogeneous returns. Everyone earns a common return on broadly accessible assets. Only individuals above a wealth threshold—calibrated so that it corresponds to the top 1%—earn an additional return from private-firm innovation.



The model is calibrated to match the U.S. wealth distribution in 1979, before inequality began rising. The authors then feed in the observed evolution of innovation value, its growing private share, and corresponding tax rates.

Explaining the Rise in Top Wealth Shares

In the data, the top 1% wealth share rises by about 13 percentage points between 1979 and 2015. The model with exclusive access to private-firm innovation generates an increase of nearly 9 percentage points—about two-thirds of the observed rise.

By contrast, a standard model in which everyone earns the same average return produces an increase of less than 1 percentage point. Put differently, without unequal access to private innovation, the model cannot explain the surge in top wealth concentration.

Counterfactual exercises reinforce this conclusion. Holding the private share of innovation fixed at its 1979 level cuts the predicted rise in top wealth shares roughly in half. Furthermore, changes in overall innovation value and its private share reinforce each other, amplifying inequality over time.

Tax Policy and Private Innovation

The paper also examines how tax policy interacts with private innovation-driven inequality.

Reductions in capital gains taxes materially increase top wealth concentration, while taxes on interest income and dividends matter far less. Eliminating capital gains taxation for the top 1% nearly replicates the full rise in observed inequality. R&D subsidies also play a role by boosting innovation value that disproportionately benefits wealthy investors.

“The growing role of private markets in generating innovation value raises questions about the distributional consequences of innovation occurring outside public capital markets,” the authors write.