Economics Dictionary of ArgumentsHome
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| Innovation: Innovation is the introduction of new ideas or processes that create new value. See also Progress, Creativity, History, Historiography, Technology, Science. _____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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Peter W. Howitt on Innovation - Dictionary of Arguments
Aghion I 323 Economic growth/innovation/thesis/Aghion/Howitt: Both the average growth rate and the variance of the growth rate are increasing functions of the size of innovations, the size of the skilled labor force, and the productivity of research as measured by a parameter indicating the effect of research on the Poisson arrival rate of innovations; and decreasing functions of the rate of time preference of the representative individual. >Research and Development, >Skilled labour, >Productivity, >Time preference. Under laissez faire the economy's growth rate may be more or less than optimal because, in addition to the appropriability and intertemporal spillover effects of other endogenous growth models, which tend to make growth slower than optimal, the model also has effects that work in the opposite direction. >Laisser-faire, >Knowledge spillover, >Endogenous growth, cf. >Exogenous growth. In particular, the fact that private research firms do not internalize the destruction of rents generated by their innovations introduces a business-stealing effect similar to that found in the partial-equilibrium patent race literature. >Patents, >Equilibrium, >Equilibrium theory, >Copyright, >Rent, >Revenue, >Intellectual property. When we endogenize the size of innovations we find that business stealing also makes innovations too small. >Endogenous growth/Aghion/Howitt. Aghion I 324 Innovation/Aghion/Howitt: (…) [our] the model* assumes, following Schumpeter, that individual innovations are sufficiently important to affect the entire economy. >Innovation/Schumpeter. Method: A period is the time between two successive innovations. The length of each period is random, because of the stochastic nature of the innovation process, but the relationship between the amount of research in two successive periods can be modelled as deterministic. The amount of research this period depends negatively upon the expected amount next period, through two effects. 1) The first effect is that of creative destruction. The payoff from research this period is the prospect of monopoly rents next period. Those rents will last only until the next innovation occurs, at which time the knowledge underlying the rents will be rendered obsolete. Thus the expected present value of the rents depends negatively upon the Poisson arrival rate of the next innovation. The expectation of more research next period will increase that arrival rate, and hence will discourage research this period. >Creative destruction. 2) The second effect is a general equilibrium effect working through the wage of skilled labor, which can be used either in research or in manufacturing. In order to be consistent with the conditions for labor-market equilibrium, the expectation of more research next period must correspond to an expectation of higher demand for skilled labor in research next period, which implies the expectation of a higher real wage of skilled labor. Higher wages next period will reduce the monopoly rents that can be gained by exclusive knowledge of how to produce the best products. Thus the expectation of more research next period will discourage research this period by reducing the flow of rents expected to accrue to a successful innovator. >Skilled labour, >Equilibrium, >Wages, >Real wage. This functional relationship between research in two successive periods has a unique fixed point, which defines a stationary equilibrium. >Fixed points. The stationary equilibrium exhibits balanced growth, in the sense that the allocation of skilled labor between research and manufacturing remains unchanged with each innovation; Aghion I 325 the log of GNP follows a random walk with drift. This is not always, however, the only equilibrium in the model. >Gross National Product (GNP). As in the overlapping-generations literature the functional relationship can also be satisfied by cyclical trajectories. Growth: One noteworthy implication of the negative dependency of current research upon future research is the possible existence of what we call a "no-growth trap," a cyclical equilibrium in which the level of research oscillates deterministically between two levels each period, and in which the lower of these two levels is zero. An economy in such an equilibrium would stop growing in finite time, because with no research there would be no innovation, and hence the period with no research would never come to an end. The (rational) expectation that the next innovation would be followed by a very high level of research would discourage anyone from undertaking that innovation >Economic growth, >Endogenous growth, >Exogenous growth, >New growth theory, >Economic expectation, >Research/Aghion/Howitt. * Philippe Aghion and Peter Howitt. (1992). A Model of Growth Through Creative Destruction Econometrica, Vol. 60, No. 2 (Mar., 1992), pp. 323-351_____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
Howitt, Peter W. Aghion I Philippe Aghion Peter W. Howitt A Model of Growth Through Creative Destruction Econometrica, Vol. 60, No. 2 (Mar., 1992), pp. 323-351 1992 |
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