Breakthrough innovations and welfare: The role of innovators' loss aversion and experience
AbstractTechnological refinements appears to be much more frequent than breakthrough innovations. We argue that this could be the result of an optimizing choice when the innovation revenues are exposed to Knightian uncertainty and innovators are loss-averse. The innovator's choice between breakthrough and incremental innovations is analyzed in the context of a neo-Schumpeterian growth model that accounts for the introduction of new goods and related sunk costs. The results show that the welfare generated by breakthrough innovations drops dramatically when agents are uncertainty-averse and/or loss-averse, but rises as innovators' experience increases.
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Bibliographic InfoPaper provided by University of Verona, Department of Economics in its series Working Papers with number 20/2010.
Date of creation: Dec 2010
Date of revision:
Incremental innovation; Breakthrough innovation; Uncertainty; Loss aversion; Experience;
Find related papers by JEL classification:
- D60 - Microeconomics - - Welfare Economics - - - General
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-16 (All new papers)
- NEP-INO-2011-01-16 (Innovation)
- NEP-PBE-2011-01-16 (Public Economics)
- NEP-TID-2011-01-16 (Technology & Industrial Dynamics)
- NEP-UPT-2011-01-16 (Utility Models & Prospect Theory)
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