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Innovate to Lead or Innovate to Prevail: When do Monopolistic Rents Induce Growth?

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  • Mr. Roberto Piazza
  • Yu Zheng

Abstract

This paper extends the Schumpeterian model of creative destruction by allowing followers’ cost of innovation to increase in their technological distance from the leader. This assumption is motivated by the observation the more technologically ad- vanced the leader is, the harder it is for a follower to leapfrog without incurring extra cost for using leader’s patented knowledge. Under this R&D cost structure, leaders innovate to increase their technological advantage so that followers will eventually stop innovating, allowing leadership to prevail. A new steady state then emerges featuring both leaders and followers innovating in few industries with low aggregate growth.

Suggested Citation

  • Mr. Roberto Piazza & Yu Zheng, 2019. "Innovate to Lead or Innovate to Prevail: When do Monopolistic Rents Induce Growth?," IMF Working Papers 2019/294, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2019/294
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    References listed on IDEAS

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    Cited by:

    1. Bräuer, Richard, 2023. "The aggregate effects of the decline of disruptive innovation," IWH Discussion Papers 22/2023, Halle Institute for Economic Research (IWH).

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    More about this item

    Keywords

    WP; equilibrium path; saddle path; equilibrium economy; equilibrium effect; equilibrium behavior; Labor supply; Skilled labor; Consumption; Wages;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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