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

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• Paolo Giordani

()

• Luca Zamparelli

()

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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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Bibliographic Info

Article provided by Springer in its journal Decisions in Economics and Finance.

Volume (Year): 34 (2011)
Issue (Month): 1 (May)
Pages: 67-84

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Handle: RePEc:spr:decfin:v:34:y:2011:i:1:p:67-84

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Related research

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

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

References

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Cited by:
1. Roxana Mihet, 2012. "Effects of Culture on Firm Risk-Taking: A Cross-Country and Cross-Industry Analysis," IMF Working Papers 12/210, International Monetary Fund.

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