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Animal spirits and the composition of innovation

Cozzi, G.

Authors

G. Cozzi



Abstract

This paper shows that the Schumpeterian model with both vertical and horizontal innovative research admits many more equilibria than the unique symmetric balanced growth path (BGP) usually highlighted in the literature. Each of a continuum of BGPs is characterized by a different composition of aggregate R&D (vertical versus horizontal). This appears if firms expect self-fulfilling “waves of enthusiasm” in the newly introduced sectors, as is very common in the real world. Pioneers are challenged by more outsiders and the first monopoly of every new good is likely to last less than in more mature industries: By expecting this horizontal innovation is depressed while vertical innovation is more intense. Such “waves of enthusiasm” have a positive effect on growth rates and a negative effect on consumption levels.

Citation

Cozzi, G. (2005). Animal spirits and the composition of innovation. European Economic Review, 49(3), 627-637. https://doi.org/10.1016/j.euroecorev.2003.08.003

Journal Article Type Article
Publication Date Apr 1, 2005
Deposit Date Feb 18, 2010
Journal European Economic Review
Print ISSN 0014-2921
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 49
Issue 3
Pages 627-637
DOI https://doi.org/10.1016/j.euroecorev.2003.08.003
Keywords Schumpeterian growth model, Horizontal and vertical innovation, Indeterminacy, Sunspots.
Public URL https://durham-repository.worktribe.com/output/1554168