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Leadership Cycles

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  • Piercarlo Zanchettin

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  • Vincenzo Denicolò

Abstract

We study a quality-ladder model of endogenous growth that produces stochastic leadership cycles. Over a cycle, industry leaders can innovate several successive times in the same industry, gradually increasing the magnitude of their technological lead before being replaced by a new en-trant. Initially, new leaders are eager to enlarge their lead and do much of the research, but if they innovate repeatedly, their propensity to invest in R&D decreases. Eventually they stop doing research ltogether, and as they are overtaken a new cycle starts. The model generates a skewed firm size distribution and a deviation from Gibrat's law that accord with the empirical evidence. We also consider various policy measures, showing that in some cases policy should favour R&D by incumbents, not outsiders, and that stronger patent protection may reduce innovation and growth.

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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 09/25.

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Date of creation: Nov 2009
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Handle: RePEc:lec:leecon:09/25

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  25. repec:fth:harver:1473 is not listed on IDEAS
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Cited by:
  1. Helene LATZER, 2010. "Income inequalities and innovation by incumbents," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2010002, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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