Competing process and quality innovation in a model of occupational choice
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.
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| Length: | 18pages |
| Date of creation: | Nov 2009 |
| Date of revision: | |
| Handle: | RePEc:koe:wpaper:0915 |
| Contact details of provider: | Web page: http://www.econ.kobe-u.ac.jp Email: More information through EDIRC
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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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- Laura Bottazzi & Giovanni Peri, .
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215, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Bottazzi, Laura & Peri, Giovanni, 2003. "Innovation and spillovers in regions: Evidence from European patent data," European Economic Review, Elsevier, vol. 47(4), pages 687-710, August.
- Yeaple, Stephen Ross, 2005. "A simple model of firm heterogeneity, international trade, and wages," Journal of International Economics, Elsevier, vol. 65(1), pages 1-20, January.
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