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A Model of Primary and Secondary Waves in Investment Cycles

Author

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  • Guido Fioretti

    (University of Rome "La Sapienza" and University of Stuttgart)

Abstract

Schumpeter maintained that oscillations of macroeconomic variables are only the "secondary wave" of business cycles, a reflex of more fundamental "primary waves" at the microeconomic level caused by the innovative activity of entrepreneurs. Uniting Schumpeter's concern for innovation with Keynes' concern for uncertainty and expectations formation, this article focuses on the behaviour of entrepreneurs confronting uncertainty caused by innovation. Entrepreneurs' behaviour is reconstructed by modelling the functioning of their cognitive processes when innovations appear. Recognition of the possibilities opened up by a successful innovation generates a state of optimism in the minds of single entrepreneurs, which eventually propagates to the whole economy triggering an investments upswing. likewise, unsuccessful innovations can trigger a downswing.

Suggested Citation

  • Guido Fioretti, 2002. "A Model of Primary and Secondary Waves in Investment Cycles," Microeconomics 0207014, EconWPA.
  • Handle: RePEc:wpa:wuwpmi:0207014
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    References listed on IDEAS

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    Cited by:

    1. Schmoch, Ulrich, 2007. "Double-boom cycles and the comeback of science-push and market-pull," Research Policy, Elsevier, vol. 36(7), pages 1000-1015, September.
    2. Amitrajeet Batabyal & Hamid Beladi, 2010. "A model of entrepreneurial activity with two actions over time and under uncertainty," Letters in Spatial and Resource Sciences, Springer, vol. 3(2), pages 45-54, July.

    More about this item

    Keywords

    Uncertainty; Innovation; Investments; Cognitive Processes;

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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