RandD_SL

RandD_SL - Partial Equilibrium R&D Models Prof. Lutz...

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Unformatted text preview: Partial Equilibrium R&D Models Prof. Lutz Hendricks August 7, 2009 L. Hendricks () R&D model August 7, 2009 1 / 30 Issues We study models where intentional innovation drives productivity growth. We start with partial equilibrium to see how consumers and &rms behave. Then we embed this into a GE model. L. Hendricks () RD model August 7, 2009 2 / 30 Background Historians often view innovation as the result of research that is not pro&t driven. Economists treat innovation as producing goods that are sold in markets ("blueprints"). There are historical examples of both types of innovation. L. Hendricks () RD model August 7, 2009 3 / 30 How to model innovation Current models are somewhat reduced form. The issue how existing knowledge feeds into future innovation is treated as a knowledge spillover. Knowledge is treated as a scalar - like capital. In fact, the only di/erence between blueprints and machines is non-rivalry : blueprints can be used simultaneously in the production of several goods. L. Hendricks () R&D model August 7, 2009 4 30 Partial Equilibrium Innovation L. Hendricks () R&D model August 7, 2009 5 / 30 Partial Equilibrium: Firm We study the problem of an innovating &rm. Innovation reduces marginal cost. No innovation: marginal cost . Innovation costs . Reduces marginal cost to / . The &rm faces a demand curve Q = D ( p ) . Price elasticity: D . L. Hendricks () RD model August 7, 2009 6 / 30 Partial Equilibrium Drastic / non drastic innovation Assume a large number of &rms with marginal cost . A drastic innovation gives the innovator a monopoly. The monopoly price is below competitors marginal cost ....
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This note was uploaded on 10/29/2009 for the course ECON 720 at UNC.

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RandD_SL - Partial Equilibrium R&D Models Prof. Lutz...

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