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Leadership Cycles

Listed author(s):
  • Piercarlo Zanchettin

    ()

  • Vincenzo Denicolò

We study a quality-ladder model of endogenous growth that produces stochastic leadership cycles. Over a cycle, industry leaders can innovate several successive times in the same industry, gradually increasing the magnitude of their technological lead before being replaced by a new en-trant. Initially, new leaders are eager to enlarge their lead and do much of the research, but if they innovate repeatedly, their propensity to invest in R&D decreases. Eventually they stop doing research ltogether, and as they are overtaken a new cycle starts. The model generates a skewed firm size distribution and a deviation from Gibrat's law that accord with the empirical evidence. We also consider various policy measures, showing that in some cases policy should favour R&D by incumbents, not outsiders, and that stronger patent protection may reduce innovation and growth.

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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 09/25.

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Date of creation: Nov 2009
Handle: RePEc:lec:leecon:09/25
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  2. Esteban Rossi-Hansberg & Mark L.J. Wright, 2005. "Firm Size Dynamics in the Aggregate Economy," NBER Working Papers 11261, National Bureau of Economic Research, Inc.
  3. Grossman, G.M. & Helpman, E., 1989. "Quality Ladders And Product Cycles," Papers 152, Princeton, Woodrow Wilson School - Public and International Affairs.
  4. repec:fth:harver:1473 is not listed on IDEAS
  5. Jeremy C. Stein, 1997. "Waves of Creative Destruction: Firm-Specific Learning-by-Doing and the Dynamics of Innovation," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 265-288.
  6. Robert J. Barro & Xavier Sala-i-Martin, 1994. "Quality improvements in models of growth," Economics Working Papers 84, Department of Economics and Business, Universitat Pompeu Fabra.
  7. Jakob Klette & Samuel Kortum, 2002. "Innovating firms and aggregate innovation," Staff Report 300, Federal Reserve Bank of Minneapolis.
  8. Zvi Griliches, 1990. "Patent Statistics as Economic Indicators: A Survey," NBER Working Papers 3301, National Bureau of Economic Research, Inc.
  9. Gene M. Grossman & Elhanan Helpman, 1989. "Quality Ladders in the Theory of Growth," NBER Working Papers 3099, National Bureau of Economic Research, Inc.
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  14. Lentz, Rasmus & Mortensen, Dale T., 2005. "An Empirical Model of Growth Through Product Innovation," IZA Discussion Papers 1685, Institute for the Study of Labor (IZA).
  15. Rasmus Lentz & Dale T. Mortensen, 2005. "Productivity Growth And Worker Reallocation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 731-749, 08.
  16. Minniti, A. & Parello, C. & Segerstrom, P. S., 2008. "A Schumpeterian Growth Model with Heterogenous Firms," MPRA Paper 13674, University Library of Munich, Germany.
  17. Chu, Angus C., 2007. "Optimal Patent Breadth: Quantifying the Effects of Increasing Patent Breadth," MPRA Paper 3910, University Library of Munich, Germany.
  18. Segerstrom, Paul S & Anant, T C A & Dinopoulos, Elias, 1990. "A Schumpeterian Model of the Product Life Cycle," American Economic Review, American Economic Association, vol. 80(5), pages 1077-1091, December.
  19. Gian Luca Clementi & Hugo A. Hopenhayn, 2006. "A Theory of Financing Constraints and Firm Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 121(1), pages 229-265.
  20. O'Donoghue, Ted & Zweimüller, Josef, 1998. "Patents in a Model of Endogenous Growth," Economics Series 56, Institute for Advanced Studies.
  21. Philippe Aghion & Christopher Harris & Peter Howitt & John Vickers, 2001. "Competition, Imitation and Growth with Step-by-Step Innovation," Review of Economic Studies, Oxford University Press, vol. 68(3), pages 467-492.
  22. Cozzi, Guido, 2007. "Self-fulfilling prophecies in the quality ladders economy," Journal of Development Economics, Elsevier, vol. 84(1), pages 445-464, September.
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  24. Vincenzo Denicolò & Piercarlo Zanchettin, 2010. "Competition, Market Selection and Growth," Economic Journal, Royal Economic Society, vol. 120(545), pages 761-785, 06.
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