Speculative profits, innovation and growth

Denicol�, Vincenzo; Zanchettin, Piercarlo

Abstract

When technological change a¤ects the prices of tradeable assets, innovators can obtain speculative pro…ts by exploiting their inside information as to the occurrence of innovations. We propose a tractable model of endogenous growth that formalizes this argument, originally due to Hirshleifer (1971). We then use the model to assess two claims advanced by Hirshleifer, namely, that speculative pro…ts can generate excessive investment in R&D when they add to monopoly rents guaranteed by patent protection, or else even in a perfectly competitive economy. The analysis con…rms the …rst claim, but casts doubts on the second one.

Citation

Denicolò, V., & Zanchettin, P. (2017). Speculative profits, innovation and growth. Economic Inquiry, 55(1), 160-174. https://doi.org/10.1111/ecin.12375

• Journal Article Type: Article
• Acceptance Date: May 3, 2016
• Online Publication Date: Jul 14, 2016
• Publication Date: Jan 1, 2017
• Deposit Date: Jun 4, 2020
• Publicly Available Date: Jun 5, 2020
• Journal: Economic Inquiry
• Print ISSN: 0095-2583
• Electronic ISSN: 1465-7295
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 55
• Issue: 1
• Pages: 160-174
• DOI: https://doi.org/10.1111/ecin.12375
• Keywords: innovation; speculative pro…ts; endogenous growth; overinvest- ment in R&D; asset prices JEL classi…cation numbers: O30; O40
• Public URL: https://nottingham-repository.worktribe.com/output/4575312
• Publisher URL: https://onlinelibrary.wiley.com/doi/full/10.1111/ecin.12375
• Additional Information: This is the peer reviewed version of the following article: Denicolò, V. and Zanchettin, P. (2017), SPECULATIVE PROFITS, INNOVATION, AND GROWTH. Econ Inq, 55: 160-174, which has been published in final form at https://doi.org/10.1111/ecin.12375. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions.