Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Lindahl equilibrium in Schumpeterian growth models: Knowledge diffusion, social value of innovations and optimal R&D incentives

Contents:

Author Info

  • Gray, Elie
  • Grimaud, André
Registered author(s):

    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. Assuming that knowledge diffuses on a Salop (1979) circle allows us to formalize the creation of the pools of knowledge in which research and development (R&D) activities draw from to produce innovations. Within this model, we compare two equilibria. The standard Schumpeterian equilibrium à la Aghion & Howitt (1992) is mainly characterized by incomplete markets since knowledge is not priced. It provides the usual private value of innovations. The Lindahl equilibrium is a benchmark enabling us to compute the system of prices that sustains the first-best social optimum, and thus to define and to determine analytically the social value of innovations. It provides a suitable methodology for revisiting issues involving the presence of knowledge, often studied in the industrial organization and endogenous growth literatures. This comparison sheds a new light on the consequences of non-rivalry of knowledge and of market incompleteness on innovators’ behavior in the Schumpeterian equilibrium. We notably revisit the issues of Pareto sub-optimality and of R&D incentives in presence of cumulative innovations. Basically, the key externality triggered by market incompleteness implies that knowledge creation is indirectly funded by means of intellectual property rights on rival goods embodying knowledge. Therefore, because the private value of innovations differs from the social one, innovators are not given the optimal incentives.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www2.toulouse.inra.fr/lerna/travaux/cahiers2014/14.02.403.pdf
    File Function: Full text
    Download Restriction: no

    Bibliographic Info

    Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 14-469.

    as in new window
    Length:
    Date of creation: Jan 2014
    Date of revision:
    Handle: RePEc:tse:wpaper:27914

    Contact details of provider:
    Phone: (+33) 5 61 12 86 23
    Web page: http://www.tse-fr.eu/
    More information through EDIRC

    Related research

    Keywords: Schumpeterian growth theory - Lindahl equilibrium - Social value of innovations - Pareto sub-optimality - Cumulative innovations - Knowledge spillovers;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Daron Acemoglu & Ufuk Akcigit, 2012. "Intellectual Property Rights Policy, Competition And Innovation," Journal of the European Economic Association, European Economic Association, vol. 10(1), pages 1-42, 02.
    2. Li, Chol-Won, 2002. "Growth and scale effects: the role of knowledge spillovers," Economics Letters, Elsevier, vol. 74(2), pages 177-185, January.
    3. Grossman, Gene M & Helpman, Elhanan, 1991. "Quality Ladders in the Theory of Growth," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 43-61, January.
    4. Chu, Angus C. & Cozzi, Guido & Galli, Silvia, 2010. "Does intellectual monopoly stimulate or stifle innovation?," MPRA Paper 29061, University Library of Munich, Germany.
    5. Ted O'Donoghue & Josef Zweim¸ller, 2004. "Patents in a Model of Endogenous Growth," Journal of Economic Growth, Springer, vol. 9(1), pages 81-123, 03.
    6. Segerstrom, Paul S, 1998. "Endogenous Growth without Scale Effects," American Economic Review, American Economic Association, vol. 88(5), pages 1290-1310, December.
    7. James Bessen & Eric Maskin, 2006. "Sequential Innovation, Patents, and Imitation," Economics Working Papers 0025, Institute for Advanced Study, School of Social Science.
    8. Étienne Chantrel & Andre Grimaud & Frederic Tournemaine, 2012. "Pricing Knowledge and Funding Research of New Technology Sectors in a Growth Model," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(3), pages 493-520, 06.
    9. Chol-Won Li, 1998. "Endogenous Growth Without Scale Effects: Comment," Working Papers 9819, Business School - Economics, University of Glasgow.
    10. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
    11. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
    12. Benassy, Jean-Pascal, 1998. "Is there always too little research in endogenous growth with expanding product variety?," European Economic Review, Elsevier, vol. 42(1), pages 61-69, January.
    13. Segerstrom, Paul S., 1998. "The Long-Run Growth Effects of R&D Subsidies," Working Paper Series 506, Research Institute of Industrial Economics.
    14. Peretto, Pietro F., 1999. "Cost reduction, entry, and the interdependence of market structure and economic growth," Journal of Monetary Economics, Elsevier, vol. 43(1), pages 173-195, February.
    15. Peretto, P. & Smulders, J.A., 2002. "Technological distance, growth and scale effects," Open Access publications from Tilburg University urn:nbn:nl:ui:12-89730, Tilburg University.
    16. John C. Williams & Charles I. Jones, 1995. "Too much of a good thing? The economics of investment in R&D," Finance and Economics Discussion Series 95-39, Board of Governors of the Federal Reserve System (U.S.).
    17. Jerry R. Green & Suzanne Scotchmer, 1995. "On the Division of Profit in Sequential Innovation," RAND Journal of Economics, The RAND Corporation, vol. 26(1), pages 20-33, Spring.
    18. Zvi Griliches, 1998. "The Search for R&D Spillovers," NBER Chapters, in: R&D and Productivity: The Econometric Evidence, pages 251-268 National Bureau of Economic Research, Inc.
    19. Chari, V V & Hopenhayn, Hugo, 1991. "Vintage Human Capital, Growth, and the Diffusion of New Technology," Journal of Political Economy, University of Chicago Press, vol. 99(6), pages 1142-65, December.
    20. Maria J. Alvarez-Pelaez & Christian Groth, 2002. "Too little or too much R&D?," Discussion Papers 02-01, University of Copenhagen. Department of Economics.
    21. Philippe Aghion & Peter Howitt, 2009. "The Economics of Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012634, December.
    22. Pietro F. Peretto, 2005. "Corporata Taxes, Growth and Welfare in a Schumpeterian Economy," 2005 Meeting Papers 653, Society for Economic Dynamics.
    23. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
    24. Garner, Phillip, 2010. "A note on endogenous growth and scale effects," Economics Letters, Elsevier, vol. 106(2), pages 98-100, February.
    25. Peretto, Pietro F, 1998. " Technological Change and Population Growth," Journal of Economic Growth, Springer, vol. 3(4), pages 283-311, December.
    26. Suzanne Scotchmer, 1991. "Standing on the Shoulders of Giants: Cumulative Research and the Patent Law," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 29-41, Winter.
    27. Cozzi, Guido & Giordani, Paolo E. & Zamparelli, Luca, 2007. "The refoundation of the symmetric equilibrium in Schumpeterian growth models," Journal of Economic Theory, Elsevier, vol. 136(1), pages 788-797, September.
    28. Dinopoulos, Elias & Thompson, Peter, 1998. " Schumpeterian Growth without Scale Effects," Journal of Economic Growth, Springer, vol. 3(4), pages 313-35, December.
    29. Alwyn Young, 1998. "Growth without Scale Effects," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 41-63, February.
    30. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, September.
    31. Milleron, Jean-Claude, 1972. "Theory of value with public goods: A survey article," Journal of Economic Theory, Elsevier, vol. 5(3), pages 419-477, December.
    32. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    33. Steven C. Salop, 1979. "Monopolistic Competition with Outside Goods," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 141-156, Spring.
    34. Manning, Richard & Markusen, James R & McMillan, John, 1985. "Paying for Public Inputs," American Economic Review, American Economic Association, vol. 75(1), pages 235-38, March.
    35. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-84, August.
    36. Joonkyung Ha & Peter Howitt, 2007. "Accounting for Trends in Productivity and R&D: A Schumpeterian Critique of Semi-Endogenous Growth Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(4), pages 733-774, 06.
    37. Christopher Laincz & Pietro Peretto, 2006. "Scale effects in endogenous growth theory: an error of aggregation not specification," Journal of Economic Growth, Springer, vol. 11(3), pages 263-288, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:tse:wpaper:27914. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.