A common assumption in the Schumpeterian growth literature is that the innovation size is constant and identical across industries. This is in contrast with the empirical evidence which shows that: (1) innovation size is not identical across industries and (2) the size distribution of profit returns from innovation is highly skewed toward the low value side, with a long tail on the high value side. In the present paper, we develop a Schumpeterian growth model that is consistent with this evidence. In particular, we assume that when a firm innovates, the size of its quality improvement is the result of a random draw from a Pareto distribution. This enables us to extend the class of quality-ladder growth models to encompass firm heterogeneity. We study the policy implications of this new setup numerically and find that it is optimal to heavily subsidize R&D for plausible parameter values. Although it is optimal to tax R&D for some parameter values, this case only occurs when the steady-state rate of economic growth is very low.

A Schumpetreian growth model with random quality improvements / A. Minniti; C. Parello; P. S. Segerstrom. - In: ECONOMIC THEORY. - ISSN 1432-0479. - STAMPA. - 52:2(2013), pp. 755-791. [10.1007/s00199-011-0664-0]

A Schumpetreian growth model with random quality improvements

MINNITI, ANTONIO;
2013

Abstract

A common assumption in the Schumpeterian growth literature is that the innovation size is constant and identical across industries. This is in contrast with the empirical evidence which shows that: (1) innovation size is not identical across industries and (2) the size distribution of profit returns from innovation is highly skewed toward the low value side, with a long tail on the high value side. In the present paper, we develop a Schumpeterian growth model that is consistent with this evidence. In particular, we assume that when a firm innovates, the size of its quality improvement is the result of a random draw from a Pareto distribution. This enables us to extend the class of quality-ladder growth models to encompass firm heterogeneity. We study the policy implications of this new setup numerically and find that it is optimal to heavily subsidize R&D for plausible parameter values. Although it is optimal to tax R&D for some parameter values, this case only occurs when the steady-state rate of economic growth is very low.
2013
A Schumpetreian growth model with random quality improvements / A. Minniti; C. Parello; P. S. Segerstrom. - In: ECONOMIC THEORY. - ISSN 1432-0479. - STAMPA. - 52:2(2013), pp. 755-791. [10.1007/s00199-011-0664-0]
A. Minniti; C. Parello; P. S. Segerstrom
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11585/114167
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