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

  • Giordani, Paolo E.
  • Zamparelli, Luca

In an R&D-driven growth model with asymmetric fundamentals the steady state equilibrium R&D investments are industry-specific 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 (in the sense of Gilboa-Schmeidler, 1989) eliminates the indeterminacy of the R&D investment problem. In particular, we prove that the asymmetric return-equalizing equilibrium is robust against a however small degree of investors' aversion to ambiguity.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 17171.

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Date of creation: Sep 2009
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Handle: RePEc:pra:mprapa:17171
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