What Causes Over-investment in R&D in Endogenous Growth Models?

Denicol�, Vincenzo; Zanchettin, Piercarlo

Abstract

Endogenous growth models may exhibit either under-or over-investment in R&D. The possibility of over-investment is generally attributed to a business-stealing e¤ect that arises as the latest innovator destroys and/or appropriates previous incumbent's rents. We argue that this conventional wisdom is misleading. In standard models, business stealing by itself cannot result in excessive R&D. We explain the other e¤ects that must be at work here, thus contributing towards a better understanding of when and why the market may be biased towards excessive R&D.

Citation

Denicolò, V., & Zanchettin, P. (2014). What Causes Over-investment in R&D in Endogenous Growth Models?. Economic Journal, 124(581), 1192-1212. https://doi.org/10.1111/ecoj.12132

• Journal Article Type: Article
• Acceptance Date: Jan 1, 2014
• Online Publication Date: Feb 25, 2014
• Publication Date: Jan 12, 2014
• Deposit Date: Jun 8, 2020
• Publicly Available Date: Jun 8, 2020
• Journal: Economic Journal
• Print ISSN: 0013-0133
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 124
• Issue: 581
• Pages: 1192-1212
• DOI: https://doi.org/10.1111/ecoj.12132
• Keywords: Endogenous growth; over-investment in R&D; business-stealing e¤ect; monopoly distortion e¤ect; R&D congestion e¤ect JEL classi…cation number: O10, O30
• Public URL: https://nottingham-repository.worktribe.com/output/4604849
• Publisher URL: https://onlinelibrary.wiley.com/doi/full/10.1111/ecoj.12132