Emergent Pareto-Levy Distributed Returns to Research in a Multi-Agent Model of Endogenous Technical Change
AbstractWe build a multi-agent model of endogenous technical change in which heterogeneous investments in patented knowledge generate Pareto-Levy and lognormal distributed returns to investment in research from very weak distributional assumptions. Firms produce a homogenous good and a public stock of knowledge accumulates from the expired patents of privately produced knowledge. Increasing returns to scale are derivative of endogenously produced technology, but the market remains competitive due to imperfect information and costly household search. The interaction of heterogeneous knowledge, research investment, revenues, and search outcomes across agents endogenously generates the empirically observed but seemingly idiosyncratic Pareto- Levy and lognormal mixture distribution of market returns. These distributional characteristics have ramifications for endogenous growth models given the importance of extreme values and market leaders in technological advancement. Average growth rates in the model have a global maximum at a finite, non-zero patent length. The distribution of growth rates is characterized by “fat tails.” The variance of growth rates increases with patent length.
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Bibliographic InfoPaper provided by Towson University, Department of Economics in its series Working Papers with number 2010-10.
Length: 33 pages
Date of creation: Apr 2010
Date of revision: Apr 2010
patents; endogenous growth; increasing returns to scale; price dispersion; search; heterogeneous agents.;
Find related papers by JEL classification:
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-04-24 (All new papers)
- NEP-CMP-2010-04-24 (Computational Economics)
- NEP-DGE-2010-04-24 (Dynamic General Equilibrium)
- NEP-INO-2010-04-24 (Innovation)
- NEP-IPR-2010-04-24 (Intellectual Property Rights)
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