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Research Bubbles

Author

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  • Hans Gersbach

    (Center of Economic Research (CER-ETH), ETH Zurich, Switzerland)

  • Evgenij Komarov

    (Center of Economic Research (CER-ETH), ETH Zurich, Switzerland)

Abstract

We develop a model to rationalize and examine so-called “research bubbles”, i.e. research activities based on overoptimistic beliefs about the impact of this research on the economy. Research bubbles occur when researchers selfselect into research activities and the government aggregates the assessment of active researchers on the way advances in research may spur innovation and growth. In an overlapping generations framework, we study the occurrence of research bubbles and show that they tend to be welfare-improving. Particular forms can even implement the socially optimal solution. However, research bubbles can collapse, and we discuss institutional devices and the role of debt financing that ensure the sustainability of such bubbles. Finally, we demonstrate that research bubbles emerge in various extensions of our baseline model.

Suggested Citation

  • Hans Gersbach & Evgenij Komarov, 2020. "Research Bubbles," CER-ETH Economics working paper series 20/331, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:20-331
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    More about this item

    Keywords

    Endogenous Growth; Basic Research and Macro-Based Behavioral Economics;

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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