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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. Charles I. Jones & John C. Williams, 1998. "Measuring The Social Return To R&D," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1119-1135, November.
  2. 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.
  3. 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.
  4. Jones, C.I., 2000. "Sources of U.S. Economic Growth in a World of Ideas," Papers 99-29, United Nations World Employment Programme-.
  5. Charles I. Jones, 2004. "Growth and Ideas," NBER Working Papers 10767, National Bureau of Economic Research, Inc.
  6. Alvarez-Pelaez, Maria J. & Groth, Christian, 2005. "Too little or too much R&D?," European Economic Review, Elsevier, vol. 49(2), pages 437-456, February.
  7. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  8. Bénassy, Jean-Pascal, 1996. "Is there always too little research in endogenous growth with expanding product variety ?," CEPREMAP Working Papers (Couverture Orange) 9615, CEPREMAP.
  9. Segerstrom, Paul S, 1998. "Endogenous Growth without Scale Effects," American Economic Review, American Economic Association, vol. 88(5), pages 1290-1310, December.
  10. Samuel S. Kortum, 1997. "Research, Patenting, and Technological Change," Econometrica, Econometric Society, vol. 65(6), pages 1389-1420, November.
  11. Grossman, Gene M & Helpman, Elhanan, 1991. "Quality Ladders in the Theory of Growth," Review of Economic Studies, Wiley Blackwell, vol. 58(1), pages 43-61, January.
  12. Dinopoulos, Elias & Thompson, Peter, 1998. " Schumpeterian Growth without Scale Effects," Journal of Economic Growth, Springer, vol. 3(4), pages 313-35, December.
  13. Peretto, Pietro F., 1996. "Technological Change and Population Growth," Working Papers 96-28, Duke University, Department of Economics.
  14. Gino Gancia & Fabrizio Zilibotti, 2005. "Horizontal Innovation in the Theory of Growth and Development," Working Papers 200, Barcelona Graduate School of Economics.
  15. 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.
  16. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  17. Alwyn Young, 1998. "Growth without Scale Effects," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 41-63, February.
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