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On R&D spillovers, multiple equilibria and indeterminacy

  • Been-Lon Chen


  • Angus Chu


Empirical studies often find significant and positive R&D spillovers across firms. In this note, we incorporate this spillover effect into a scale-invariant quality-ladder model. We find that the modified model features multiple steady states (i) a high-R&D steady state, (ii) a low-R&D steady state and (iii) a zero-R&D steady state. As for dynamics, when R&D spillovers are small, only the zero-R&D steady state is stable, and it emerges as a no-growth trap. In this case, the economy is subject sunspot fluctuations around this trap (i.e., local indeterminacy). When R&D spillovers are large, both the zero-R&D and high-R&D steady states are stable and locally indeterminate. In this case, increasing patent breadth may cause the high-R&D steady state to become unstable and the economy to converge to the no-growth trap. Therefore, strengthening patent protection may stifle innovation through the occurrence of a bifurcation.

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Article provided by Springer in its journal Journal of Economics.

Volume (Year): 100 (2010)
Issue (Month): 3 (July)
Pages: 247-263

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Handle: RePEc:kap:jeczfn:v:100:y:2010:i:3:p:247-263
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