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Leadership Cycles

  • Vincenzo Denicolò

    (University of Bologna)

  • Piercarlo Zanchettin

    (University of Leicester)

We study a quality-ladder model of endogenous growth that produces stochastic leadership cycles. Over a cycle, industry leaders can innovate several successive times in the same industry, gradually increasing the magnitude of their technological lead before being replaced by a new entrant. Initially, new leaders are eager to enlarge their lead and do much of the research, but if they innovate repeatedly, their propensity to invest in R&D decreases. Eventually they stop doing research altogether, and as they are overtaken a new cycle starts. The model generates a skewed firm size distribution and a deviation from Gibrat’s law that accord with the empirical evidence. We also consider various policy measures, showing that in some cases policy should favour R&D by incumbents, not outsiders, and that stronger patent protection may reduce innovation and growth.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2010.35.

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Date of creation: Apr 2010
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Handle: RePEc:fem:femwpa:2010.35
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  17. repec:fth:harver:1473 is not listed on IDEAS
  18. Rasmus Lentz & Dale T. Mortensen, 2005. "Productivity Growth And Worker Reallocation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 731-749, 08.
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