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Gradual Product Replacement, Intangible-Asset Prices and Schumpeterian Growth

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  • Elias Dinopoulos

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  • Douglas Waldo
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    Abstract

    The paper develops a general-equilibrium model of scale-invariant Schumpeterian (R&D-based) growth. New higher-quality products are discovered through stochastic and sequential R&D races in each industry. The market share of an R&D race winner increases gradually and is governed by an exponential deterministic process. The introduction of gradual (as opposed to instantaneous) product replacement sheds more light on the effects of the rate of technology diffusion on long-run growth and on long-run dynamics of intangible asset prices. An economy with faster product diffusion rates experiences higher long-run innovation rates, faster transitional growth, and is populated by younger firms. As the typical firm becomes older, the earnings yield (i.e., the inverse of the price earnings (P/E) ratio) increases and expected earnings growth declines. Younger firms have lower earnings, lower market shares, but higher P/E ratios and higher expected earnings growth associated with their higher potential market growth. Copyright Springer 2005

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    File URL: http://hdl.handle.net/10.1007/s10887-005-1669-y
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    Bibliographic Info

    Article provided by Springer in its journal Journal of Economic Growth.

    Volume (Year): 10 (2005)
    Issue (Month): 2 (06)
    Pages: 135-157

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    Handle: RePEc:kap:jecgro:v:10:y:2005:i:2:p:135-157

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    Web page: http://www.springerlink.com/link.asp?id=102931

    Related research

    Keywords: asset prices; diffusion; product replacement; Shumpeterion growth; E44; E12; O33;

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    Cited by:
    1. Edgar Ghossoub, . "Technological Diffusion and Asset Prices," Working Papers 0002, College of Business, University of Texas at San Antonio.
    2. Jakob Madsen, 2012. "Health, Human Capital Formation and Knowledge Production: Two Centuries of International Evidence," NBER Working Papers 18461, National Bureau of Economic Research, Inc.
    3. Elias Dinopoulos & Wolf-Heimo Grieben & Fuat Sener, 2012. "The Conundrum of Recovery Policies: Growth or Jobs?," Working Paper Series of the Department of Economics, University of Konstanz 2012-03, Department of Economics, University of Konstanz.
    4. Diego Comin & Bart Hobijn, 2007. "Implementing Technology," NBER Working Papers 12886, National Bureau of Economic Research, Inc.

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