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The Lindahl Equilibrium in Schumpeterian Growth Models: Knowledge Diffusion, Social Value of Innovations and Optimal R&D Incentives

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  • Elie Gray
  • André Grimaud
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    Abstract

    What is the social value of innovations in Schumpeterian growth models? This issue is tackled by introducing the concept of Lindahl equilibrium in a standard endogenous growth model with vertical innovations which is extended by explicitly considering knowledge diffusion on a Salop (1979) circle. Completing markets by pricing knowledge allows us to compare the private value of innovations with the social one. This comparison sheds a new light on the consequences of non-rivalry of knowledge and of market incompleteness on innovators’ behavior. Then, we notably revisit the issues of Pareto sub-optimality and of R&D incentives in presence of cumulative innovations.

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    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4678.

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    Date of creation: 2014
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    Handle: RePEc:ces:ceswps:_4678

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    Keywords: Schumpeterian growth theory; Lindahl equilibrium; social value of innovations; Pareto sub-optimality; cumulative innovations; knowledge spillovers;

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