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Schumpeterian Growth with Gradual Product Obsolescence

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  • Lai, Edwin L-C

Abstract

The model in this article captures several important aspects of the real world: gradual obsolescence of goods in the form of gradually declining net profit derived from each product until it is phased out, expanding variety of goods over time, and both dynamic and static internal increasing returns to scale of production. To eliminate the scale effect, Jones's specification that gives rise to a semiendogenous rate of innovation is adopted. The most interesting finding of the article is that, when the research duplication effect is small (large) relative to the intertemporal knowledge spillover effect in R and D, the decentralized market delivers insufficient (excessive) obsolescence and allocates too little (much) labor to R and D, while a small subsidy (tax) to innovation is welfare-improving. All these results hold because the positive knowledge spillover externality overwhelms (is overwhelmed by) the negative research duplication externality. Copyright 1998 by Kluwer Academic Publishers

Suggested Citation

  • Lai, Edwin L-C, 1998. "Schumpeterian Growth with Gradual Product Obsolescence," Journal of Economic Growth, Springer, vol. 3(1), pages 81-103, March.
    • Handle: RePEc:kap:jecgro:v:3:y:1998:i:1:p:81-103
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    Cited by:

    1. Ohki, Kazuyoshi, 2023. "Disruptive innovation by heterogeneous incumbents and economic growth: When do incumbents switch to new technology?," Journal of Mathematical Economics, Elsevier, vol. 107(C).
    2. Chung Tse, 2001. "The distribution of demand, market structure, and investment in technology," Journal of Economics, Springer, vol. 73(3), pages 275-297, October.
    3. Mateos-Planas, Xavier, 2000. "Creative destruction and public policy in a vintage model of endogenous growth," Discussion Paper Series In Economics And Econometrics 0032, Economics Division, School of Social Sciences, University of Southampton.
    4. Furukawa, Yuichi, 2013. "The struggle to survive in the R&D sector: Implications for innovation and growth," Economics Letters, Elsevier, vol. 121(1), pages 26-29.
    5. Lee, Seong-Hoon & Goo, Young-Wan, 2008. "Endogenous Income Distribution with Product Obsolescence," Hitotsubashi Journal of Economics, Hitotsubashi University, vol. 49(2), pages 75-90, December.
    6. Kwan, Yum K. & Lai, Edwin L. -C., 2003. "Intellectual property rights protection and endogenous economic growth," Journal of Economic Dynamics and Control, Elsevier, vol. 27(5), pages 853-873, March.
    7. Mateos-Planas, Xavier, 2000. "Creative destruction and public policy in a vintage model of endogenous growth," Discussion Paper Series In Economics And Econometrics 32, Economics Division, School of Social Sciences, University of Southampton.

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