There is a big jump from Hard to Elite (and (imo) another from R2 to R3) - increases in difficulty don't seem perfectly "smooth".
But, yes, higher difficulties (including higher R#'s)
do noticeably increase the % for named drops. Most vets agree that running Elite or better is the "only" way to go, but it's also true that completing on Hard is infinitely better than failing on Elite.*
(* Remember that a quest will stay open for a short while (5 min?) after you leave it. So, if your soul is bound close by (and not on Reaper), you can die, release, heal up fast, and dive back in to complete the quest. Repeat as often as it takes. You'll lose some XP, but if just farming for items or the Favor that isn't affected at all.)
Grats on the bow!
Note that the free Barovian Weapon is ML 10, and you only get 1/life. Choose wisely, you won't get another until you buy Ravenloft and TR.