TY - JOUR
T1 - Innovation, Growth, and Welfare-Improving Cycles
AU - Francois, Patrick
AU - Shi, Shouyong
N1 - Funding Information:
* We thank David Andolfatto, Dan Bernhardt, Allen Head, Richard Nahuis, Gregor Smith, and an anonymous referee for helpful comments. Earlier versions of this paper have been presented at Society of Economic Dynamics meeting at Oxford (1997), the Australasian Econometric Society meeting at Melbourne (1997), the Canadian Macroeconomic Study Group meeting at Toronto (1997), and the Department of Economics, Guelph University. Both authors acknowledge the Social Sciences and Humanities Research Council of Canada for financial support. All errors are ours alone.
PY - 1999/4
Y1 - 1999/4
N2 - This paper establishes necessary and sufficient conditions for the existence of stationary cycles in an economy comprising independent investing firms. The economy is not subject to aggregate uncertainty, investors have no direct complementarities, and all agents act independently. The cycle arises due to general equilibrium contemporaneous complementarities between investors devoting resources to innovation which yields temporary profits. With numerical examples we show that there are multiple cyclical equilibria that differ in the cycle length. Welfare and the long-run growth rate can be increased from an equilibrium where innovations occur rapidly to one with longer cycles; however, there exists a finite cycle length that maximizes welfare.Journal of Economic LiteratureClassification Numbers: E32, L16, O31, O41.
AB - This paper establishes necessary and sufficient conditions for the existence of stationary cycles in an economy comprising independent investing firms. The economy is not subject to aggregate uncertainty, investors have no direct complementarities, and all agents act independently. The cycle arises due to general equilibrium contemporaneous complementarities between investors devoting resources to innovation which yields temporary profits. With numerical examples we show that there are multiple cyclical equilibria that differ in the cycle length. Welfare and the long-run growth rate can be increased from an equilibrium where innovations occur rapidly to one with longer cycles; however, there exists a finite cycle length that maximizes welfare.Journal of Economic LiteratureClassification Numbers: E32, L16, O31, O41.
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U2 - 10.1006/jeth.1998.2503
DO - 10.1006/jeth.1998.2503
M3 - Article
AN - SCOPUS:0040240869
SN - 0022-0531
VL - 85
SP - 226
EP - 257
JO - Journal of Economic Theory
JF - Journal of Economic Theory
IS - 2
ER -