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On Robust Asymmetric Equilibria in Asymmetric R&D-Driven Growth Economies

  • Paolo E. Giordani

    ()

    (Department of Economics and Business, LUISS Guido Carli University)

  • Luca Zamparelli

    ()

    (Department of Economic Theory, Sapienza University of Rome)

In R&D-driven growth models with asymmetric fundamentals the steady-state equilibrium R&D investments are industry-specifc and they are such that R&D returns are equalized across industries. Return equalization, however, makes investors indifferent as to where to target research and, hence, the problem of allocation of R&D investments across industries is indeterminate. Agents' indifference creates an ambiguous investment scenario. We assume that agents hold "ambiguous" beliefs on the per-industry profitability of their R&D investments. Investors' aversion towards ambiguity eliminates the indeterminacy of the investment problem. In particular, the asymmetric return-equalizing equilibrium is robust against a however small degree of investors' ambiguity aversion.

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Paper provided by Dipartimento di Economia e Finanza, LUISS Guido Carli in its series Working Papers CELEG with number 0903.

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Date of creation: 2009
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Handle: RePEc:lui:celegw:0903
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