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On robust asymmetric equilibria in asymmetric R&D-driven growth economies

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  • Paolo Giordani
  • Luca Zamparelli

Abstract

In an R&D-driven growth model with asymmetric fundamentals the steady state equilibrium R&D investments are industry-specific and they are such that R&D returns are equalized across industries. Return equalization, however, makes investors indifferent as to where to target research and, hence, the problem of allocation of R&D investments across industries is indeterminate. Agents' indifference creates an ambiguous investment scenario. We assume that agents hold "ambiguous" beliefs on the per-industry profitability of their R&D investments. Investors' aversion towards ambiguity (in the sense of Gilboa-Schmeidler, 1989) eliminates the indeterminacy of the R&D investment problem. In particular, we prove that the asymmetric return-equalizing equilibrium is robust against a however small degree of investors' aversion to ambiguity.
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Suggested Citation

  • Paolo Giordani & Luca Zamparelli, 2011. "On robust asymmetric equilibria in asymmetric R&D-driven growth economies," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 34(1), pages 67-84, May.
    • Handle: RePEc:spr:decfin:v:34:y:2011:i:1:p:67-84
    DOI: 10.1007/s10203-010-0109-4
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    More about this item

    Keywords

    R&D driven growth models; Ambiguity; Ambiguity attitude; $${varepsilon}$$ -contamination; 032; 041; D81;
    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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