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Endogenous Technological Change under Uncertainty

  • Paul A. de Hek

How does risk or uncertainty in the productivity of research affect the growth rate of the economy? To answer this question, a model of endogenous technological change is used where sustained growth stems from intentional investments in R&D from profit-maximizing firms. The uncertainty arises from the productivity of these investments in R&D. The main result of this analysis is that the relationship between long-run growth and uncertainty (on the productivity of knowledge creation) depends on two main factors - the returns to scale in knowledge creation (increasing or non-increasing) and the value of the elasticity of intertemporal substitution (higher or lower than some critical value). Based on empirical studies on the returns to scale in knowledge creation (”non-increasing”) and the value of the elasticity of intertemporal substitution (”higher than the critical value”), we expect a negative relationship between long-run growth and uncertainty regarding the productivity of knowledge creation.

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Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c008_025.

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Length: 29 pages
Date of creation: May 2003
Date of revision:
Handle: RePEc:deg:conpap:c008_025
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