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Animal Spirits and the Composition of Innovation in a Lab-Equipment R&D Model with Transition

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  • Pedro Mazeda Gil

Abstract

We revisit the issue of self-fulfilling "waves of enthusiasm" as stationary rational expectations equilibria in tournament models of horizontal and vertical R&D. By considering a lab-equipment specification, the model predicts a positive effect of animal spirits on the balanced-growth-path (BGP) level of per-capita consumption without impacting on economic growth and on aggregate vertical R&D. However, transition is slower under "waves of enthusiasm", implying a longer period in which growth rates are higher than the BGP level. An economy that is subject to expectations shocks then converges at a time-varying speed. On average over time, transition is longer but less "painful" – i.e., with higher per-capita consumption levels – than otherwise.

Suggested Citation

  • Pedro Mazeda Gil, 2010. "Animal Spirits and the Composition of Innovation in a Lab-Equipment R&D Model with Transition," DEGIT Conference Papers c015_040, DEGIT, Dynamics, Economic Growth, and International Trade.
    • Handle: RePEc:deg:conpap:c015_040
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    More about this item

    Keywords

    animal spirits; endogenous growth; horizontal and vertical R&D; time-varying speed of transition;
    All these keywords.

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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