Animal spirits and the composition of innovation
Journal
European Economic Review
ISSN
0014-2921
ISSN-Digital
1873-572X
Type
journal article
Date Issued
2005-04-01
Author(s)
Abstract
This paper shows that the Schumpeterian model with both vertical and horizontal innovative research admits many more equilibria than the unique symmetric balanced growth path (BGP) usually highlighted in the literature. Each of a continuum of BGPs is characterized by a different composition of aggregate R&D (vertical versus horizontal).
This appears if firms expect self-fulfilling "waves of enthusiasm" in the newly introduced sectors, as is very common in the real world. Pioneers are challenged by more outsiders and the first monopoly of every new good is likely to last less than in more mature industries: By expecting this horizontal innovation is depressed while vertical innovation is more intense. Such "waves of enthusiasm" have a positive effect on growth rates and a negative effect on consumption levels.
This appears if firms expect self-fulfilling "waves of enthusiasm" in the newly introduced sectors, as is very common in the real world. Pioneers are challenged by more outsiders and the first monopoly of every new good is likely to last less than in more mature industries: By expecting this horizontal innovation is depressed while vertical innovation is more intense. Such "waves of enthusiasm" have a positive effect on growth rates and a negative effect on consumption levels.
Language
English
Keywords
Schumpeterian growth model
horizontal and vertical innovation
indeterminacy
sunspots
HSG Classification
contribution to scientific community
HSG Profile Area
SEPS - Economic Policy
Refereed
Yes
Publisher
Elsevier
Publisher place
Amsterdam
Volume
49
Number
3
Start page
627
End page
637
Pages
11
Subject(s)
Eprints ID
222079