The Simple Microeconomics of Induced Innovation
A general model analyzes the innovator's decision to perform research and development directed towards process innovation. The innovator chooses expenditures in several research activities. The vector of research expenditures determines the input-output coefficients that describe the innovative technology. The innovator maximizes rents, which with non-drastic innovation equals total savings of variable costs, less research expenditures. If expenditures in different activities exhibit diminishing returns in the savings of all factors, then the optimization problem has a unique solution. Comparative static results are found for changes in factor prices and demand conditions. The paper generalizes Binswanger (1974) and Binswanger (1978) to derive results with $J$ factors of production and $M$ interdependent research activities.
|Date of creation:||28 Dec 1993|
|Date of revision:|
|Note:||Keywords technology, induced innovation, theory, research and development.|
|Contact details of provider:|| Web page: http://econwpa.repec.org|
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