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An uncertainty-based explanation of symmetric growth in Schumpeterian growth models

Author

Listed:
  • Cozzi, Guido
  • Giordani, Paolo
  • Zamparelli, Luca
Abstract
We provide a re-foundation of the symmetric growth equilibrium characterizing the research sector of all vertical R&D-driven growth models. This result does not rely on the usual assumption of a symmetric expectation on the future per-sector R&D expenditure. Indeed, with this structure of expectations, returns in R&D are equalized, and agents turn out to be indifferent as to where targeting research: hence, the problem of the allocation of R&D investments across sectors is indeterminate. In line with the ’true’ Schumpeterian perspective, we solve this indeterminacy by allowing for decision makers strictly uncertain about the future per-sector distribution of R&D efforts. By using the Gilboa-Schmeidler’s MEU decision rule, we prove that the symmetric structure of R&D investment is the unique rational expectations (RE) equilibrium compatible with uncertainty-averse agents adopting a maximin strategy.

Suggested Citation

  • Cozzi, Guido & Giordani, Paolo & Zamparelli, Luca, 2006. "An uncertainty-based explanation of symmetric growth in Schumpeterian growth models," Papers 06-08, Sonderforschungsbreich 504.
    • Handle: RePEc:mnh:spaper:2582
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    File URL: https://madoc.bib.uni-mannheim.de/2582/1/dp06_08.pdf
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    References listed on IDEAS

    as
    1. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
    2. Cozzi, Guido, 2005. "Animal spirits and the composition of innovation," European Economic Review, Elsevier, vol. 49(3), pages 627-637, April.
    3. Cozzi, Guido, 2007. "Self-fulfilling prophecies in the quality ladders economy," Journal of Development Economics, Elsevier, vol. 84(1), pages 445-464, September.
    4. Epstein, Larry G & Wang, Tan, 1994. "Intertemporal Asset Pricing Under Knightian Uncertainty," Econometrica, Econometric Society, vol. 62(2), pages 283-322, March.
    5. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-587, May.
    6. Peter Howitt, 1999. "Steady Endogenous Growth with Population and R & D Inputs Growing," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 715-730, August.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    R&D-Driven Growth-Models ; Multi-Prior Beliefs ; Maxmin Strategy ; Symmetric Equilibrium;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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