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Quality-improving horizontal innovations

We modify the growth model with horizontal innovations from Romer (1990) and Jones (1995) by assuming that researchers can determine the quality of the products they invent. Because research effort increases with product quality, the researchers face a tradeoff between the quantity and the quality of their innovations. We show (i) that every product is slowly but steadily driven out of the market by superior goods, (ii) that the model does not exhibit a strong scale effect, (iii) that the long-run growth rate of the economy is not policy-invariant but can be controlled by quality-contingent R&D subsidies, and (iv) that the optimal solution can be decentralized using a mix of production subsidies, R&D subsidies, and lump-sum taxation.

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File URL: http://homepage.univie.ac.at/Papers.Econ/RePEc/vie/viennp/vie0609.pdf
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Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 0609.

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Date of creation: Oct 2006
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Handle: RePEc:vie:viennp:0609
Contact details of provider: Web page: http://www.univie.ac.at/vwl

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  1. Aghion, P. & Howitt, P., 1989. "A Model Of Growth Through Creative Destruction," UWO Department of Economics Working Papers 8904, University of Western Ontario, Department of Economics.
  2. Maria J. Alvarez-Pelaez & Christian Groth, 2002. "Too little or too much R&D?," Discussion Papers 02-01, University of Copenhagen. Department of Economics.
  3. Alwyn Young, 1998. "Growth without Scale Effects," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 41-63, February.
  4. Peretto, Pietro F., 1996. "Technological Change and Population Growth," Working Papers 96-28, Duke University, Department of Economics.
  5. Charles I. Jones & John C. Williams, 1997. "Measuring the social return to R&D," Finance and Economics Discussion Series 1997-12, Board of Governors of the Federal Reserve System (U.S.).
  6. Charles I. Jones, 2004. "Growth and Ideas," NBER Working Papers 10767, National Bureau of Economic Research, Inc.
  7. BĂ©nassy, Jean-Pascal, 1996. "Is there always too little research in endogenous growth with expanding product variety ?," CEPREMAP Working Papers (Couverture Orange) 9615, CEPREMAP.
  8. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October.
  9. Gene M. Grossman & Elhanan Helpman, 1989. "Quality Ladders in the Theory of Growth," NBER Working Papers 3099, National Bureau of Economic Research, Inc.
  10. Jones, C.I., 2000. "Sources of U.S. Economic Growth in a World of Ideas," Papers 99-29, United Nations World Employment Programme-.
  11. Gancia, Gino & Zilibotti, Fabrizio, 2005. "Horizontal Innovation in the Theory of Growth and Development," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 3, pages 111-170 Elsevier.
  12. Samuel S. Kortum, 1997. "Research, Patenting, and Technological Change," Econometrica, Econometric Society, vol. 65(6), pages 1389-1420, November.
  13. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-84, August.
  14. Segerstrom, Paul S, 1998. "Endogenous Growth without Scale Effects," American Economic Review, American Economic Association, vol. 88(5), pages 1290-1310, December.
  15. Aghion, Philippe & Howitt, Peter, 2005. "Growth with Quality-Improving Innovations: An Integrated Framework," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 2, pages 67-110 Elsevier.
  16. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  17. Dinopoulos, Elias & Thompson, Peter, 1998. " Schumpeterian Growth without Scale Effects," Journal of Economic Growth, Springer, vol. 3(4), pages 313-35, December.
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