This paper presents a model to explain why both industry leaders and follower firms often invest in R&D and explores the welfare implications of these R&D investment choices. Regardless of initial conditions, the equilibrium path in this model involves gradually convergence to a balanced growth path and R&D subsidies have no effect on the balanced growth rate. Nevertheless, it is always optimal for the government to intervene by subsidizing the R&D expenditures of industry leaders and taxing the R&D expenditures of follower firms. Without government intervention, market forces generate too much creative destruction.
Working Paper No. 524
Intel Economics
Working Paper
Reference
Segerstrom, Paul S. (1999). “Intel Economics”. IFN Working Paper No. 524. Stockholm: Research Institute of Industrial Economics (IFN).
Segerstrom, Paul S. (1999). “Intel Economics”. IFN Working Paper No. 524. Stockholm: Research Institute of Industrial Economics (IFN).
Author
Paul S. Segerstrom