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Endogenous Growth and Research Activity under Private Information

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  • Oscar Mauricio Valencia

Abstract

This paper examines an endogenous growth model with occupational choice in which innovators produce ideas. Each innovator has private knowledge of their production costs. Developers offer innovators non-linear contract schemes that affect the number of active innovators and the economic growth rate. Two main results are obtained. First, the equilibrium contract under asymmetric information leads to the selection of highly-talented workers in R&D activities and higher profits for developers. Second, the efficiency-rent extraction tradeoff lowers the economic growth rate with respect to the full information case.

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  • Oscar Mauricio Valencia, 2014. "Endogenous Growth and Research Activity under Private Information," Borradores de Economia 12169, Banco de la Republica.
    • Handle: RePEc:col:000094:012169
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    More about this item

    Keywords

    Adverse Selection; Innovation; Endogenous Growth.;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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