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Competing process and quality innovation in a model of occupational choice

Author

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  • Colin Davis

    (Kobe University, Graduate School of Economics)

  • Yasunobu Tomoda

    (Kyoto University, Institute of Economic Research)

Abstract

We develop a simple model of endogenous growth and occupational choice in which skill differentiated workers choose between three types of employment activity: production, process innovation,and quality innovation. Incumbent firms invest in process innovation to reduce production costs and market entrants invest in quality improvements in order to capture the market from vintage product lines. We use this framework to examine innovation incentives for incumbent firms in an environment of creative destruction and find that there are two plausible and stable patterns of product evolution: a corner equilibrium with quality growth alone, and an interior equilibrium with both productivity growth and quality growth. We also show that the process innovation of an interior equilibrium has important policy implications for economic growth.

Suggested Citation

  • Colin Davis & Yasunobu Tomoda, 2009. "Competing process and quality innovation in a model of occupational choice," Discussion Papers 0915, Graduate School of Economics, Kobe University.
    • Handle: RePEc:koe:wpaper:0915
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    References listed on IDEAS

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