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Ambiguity Attitude, R&D Investments and Economic Growth

  • Guido Cozzi
  • Paolo E. Giordani

The process aimed at discovering new ideas is an economic activity whose returns are intrinsically uncertain. In a standard neo-Schumpeterian growth framework we assume that, when deciding upon R&D efforts, economic agents hold ‘ambiguous beliefs’ about the exact probability of arrival of the next vertical innovations, and face ambiguity via the α-MEU decision rule (Ghirardato et al. (2004)). Along the steady-state equilibrium the higher the agents’ ambiguity aversion (α), the lower the R&D efforts and, coeteris paribus, the overall economic performance. Consistently with a cross-country empirical evidence, this causal mechanism suggests that, together with the profitability conditions of the economy, different ‘cultural’ attitudes towards ambiguity may contribute to explain the different R&D intensities observed across countries.

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Paper provided by Business School - Economics, University of Glasgow in its series Working Papers with number 2008_06.

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Handle: RePEc:gla:glaewp:2008_06
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