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Gradual Product Replacement, Intangible-Asset Prices and Schumpeterian Growth

  • Elias Dinopoulos

    ()

  • Douglas Waldo
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    The paper develops a general-equilibrium model of scale-invariant Schumpeterian (R&D-based) growth. New higher-quality products are discovered through stochastic and sequential R&D races in each industry. The market share of an R&D race winner increases gradually and is governed by an exponential deterministic process. The introduction of gradual (as opposed to instantaneous) product replacement sheds more light on the effects of the rate of technology diffusion on long-run growth and on long-run dynamics of intangible asset prices. An economy with faster product diffusion rates experiences higher long-run innovation rates, faster transitional growth, and is populated by younger firms. As the typical firm becomes older, the earnings yield (i.e., the inverse of the price earnings (P/E) ratio) increases and expected earnings growth declines. Younger firms have lower earnings, lower market shares, but higher P/E ratios and higher expected earnings growth associated with their higher potential market growth. Copyright Springer 2005

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    File URL: http://hdl.handle.net/10.1007/s10887-005-1669-y
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    Article provided by Springer in its journal Journal of Economic Growth.

    Volume (Year): 10 (2005)
    Issue (Month): 2 (06)
    Pages: 135-157

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    Handle: RePEc:kap:jecgro:v:10:y:2005:i:2:p:135-157
    Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=102931

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