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Coordination Frictions and Economic Growth

Listed author(s):
  • Miroslav Gabrovski

In practice, firms face a mass of scarce innovation projects. They choose a particular research avenue towards which to direct their effort, but do not coordinate these choices. This gives rise to coordination frictions. This paper develops an expanding-variety endogenous growth model to study the impact of these frictions on the economy. The coordination failure generates a mass of foregone innovation and reduces the economy-wide research intensity. Both of these effects decrease the growth rate. Because of this, the frictions also amplify the fraction of wasteful simultaneous innovation. A numerical exercise suggests that the impact of coordination frictions on both the growth rate and welfare is substantial.

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Paper provided by Job Market Papers in its series 2017 Papers with number pga928.

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Date of creation: 26 Oct 2017
Handle: RePEc:jmp:jm2017:pga928
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