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Endogenous Technological Change under Uncertainty

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  • Paul A. de Hek

    ()
    (Erasmus University Rotterdam)

Abstract

How does risk or uncertainty in the productivity of research affect the growth rate of the economy? To answer this question, a model of endogenous technological change is used where sustained growth stems from intentional investments in R&D from profit-maximizing firms. The uncertainty arises from the productivity of these investments in R&D. The main result of this analysis is that the relationship between long-run growth and uncertainty (on the productivity of knowledge creation) depends on two main factors - the returns to scale in knowledge creation (increasing or non-increasing) and the value of the elasticity of intertemporal substitution (higher or lower than some critical value).Based on empirical studies on the returns to scale in knowledge creation ("non-increasing") and the value of the elasticity of intertemporal substitution ("higher than the critical value"), we expect a negative relationship between long-run growth and uncertainty regarding the productivity of knowledge creation.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 02-047/2.

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Date of creation: 28 May 2002
Date of revision: 08 Nov 2002
Handle: RePEc:dgr:uvatin:20020047

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Keywords: Long-run growth; Technological change; Uncertainty.;

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