Research Bubbles

Hans Gersbach and Evgenij Komarov ()
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Evgenij Komarov: Center of Economic Research (CER-ETH), ETH Zurich, Switzerland

No 20/331, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: We develop a model to rationalize and examine so-called “research bubbles”, i.e. research activities based on overoptimistic beliefs about the impact of this research on the economy. Research bubbles occur when researchers selfselect into research activities and the government aggregates the assessment of active researchers on the way advances in research may spur innovation and growth. In an overlapping generations framework, we study the occurrence of research bubbles and show that they tend to be welfare-improving. Particular forms can even implement the socially optimal solution. However, research bubbles can collapse, and we discuss institutional devices and the role of debt financing that ensure the sustainability of such bubbles. Finally, we demonstrate that research bubbles emerge in various extensions of our baseline model.

Keywords: Endogenous Growth; Basic Research and Macro-Based Behavioral Economics (search for similar items in EconPapers)
JEL-codes: E02 E71 O32 O41 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2020-04
New Economics Papers: this item is included in nep-mac
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