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The Lindahl Equilibrium in Schumpeterian Growth Models: Knowledge Diffusion, Social Value of Innovations and Optimal R&D Incentives

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  • Elie Gray
  • André Grimaud

Abstract

What is the social value of innovations in Schumpeterian growth models? This issue is tackled by introducing the concept of Lindahl equilibrium in a standard endogenous growth model with vertical innovations which is extended by explicitly considering knowledge diffusion on a Salop (1979) circle. Completing markets by pricing knowledge allows us to compare the private value of innovations with the social one. This comparison sheds a new light on the consequences of non-rivalry of knowledge and of market incompleteness on innovators’ behavior. Then, we notably revisit the issues of Pareto sub-optimality and of R&D incentives in presence of cumulative innovations.

Suggested Citation

  • Elie Gray & André Grimaud, 2014. "The Lindahl Equilibrium in Schumpeterian Growth Models: Knowledge Diffusion, Social Value of Innovations and Optimal R&D Incentives," CESifo Working Paper Series 4678, CESifo.
  • Handle: RePEc:ces:ceswps:_4678
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    More about this item

    Keywords

    Schumpeterian growth theory; Lindahl equilibrium; social value of innovations; Pareto sub-optimality; cumulative innovations; knowledge spillovers;
    All these keywords.

    JEL classification:

    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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