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The Simple Microeconomics of Induced Innovation

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  • Jason E. Christian

    (Department of Agricultural Economics, U.C. Davis)

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    Abstract

    A general model analyzes the innovator's decision to perform research and development directed towards process innovation. The innovator chooses expenditures in several research activities. The vector of research expenditures determines the input-output coefficients that describe the innovative technology. The innovator maximizes rents, which with non-drastic innovation equals total savings of variable costs, less research expenditures. If expenditures in different activities exhibit diminishing returns in the savings of all factors, then the optimization problem has a unique solution. Comparative static results are found for changes in factor prices and demand conditions. The paper generalizes Binswanger (1974) and Binswanger (1978) to derive results with $J$ factors of production and $M$ interdependent research activities.

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    Bibliographic Info

    Paper provided by EconWPA in its series Industrial Organization with number 9312001.

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    Date of creation: 28 Dec 1993
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    Handle: RePEc:wpa:wuwpio:9312001

    Note: Keywords technology, induced innovation, theory, research and development.
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    Web page: http://128.118.178.162

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    1. Grossman, Gene M & Helpman, Elhanan, 1989. "Product Development and International Trade," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1261-83, December.
    2. Katz, Michael L & Shapiro, Carl, 1986. "How to License Intangible Property," The Quarterly Journal of Economics, MIT Press, vol. 101(3), pages 567-89, August.
    3. Krugman, Paul, 1979. "A Model of Innovation, Technology Transfer, and the World Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 253-66, April.
    4. Kennedy, Charles, 1973. "A Generalisation of the Theory of Induced Bias in Technical Progress," Economic Journal, Royal Economic Society, vol. 83(329), pages 48-57, March.
    5. Binswanger, Hans P., 1974. "A Microeconomic Approach To Induced Innovation," Staff Papers 14152, University of Minnesota, Department of Applied Economics.
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    Cited by:
    1. Ruttan, Vernon W., 1996. "Sources Of Technical Change: Induced Innovation, Evolutionary Theory And Path Dependence," Bulletins 12974, University of Minnesota, Economic Development Center.

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