On Robust Asymmetric Equilibria in Asymmetric R&D-Driven Growth Economies

Giordani, Paolo E. and Zamparelli, Luca (2009): On Robust Asymmetric Equilibria in Asymmetric R&D-Driven Growth Economies.

Abstract

In an R&D-driven growth model with asymmetric fundamentals the steady state equilibrium R&D investments are industry-specific and they are such that R&D returns are equalized across industries. Return equalization, however, makes investors indifferent as to where to target research and, hence, the problem of allocation of R&D investments across industries is indeterminate. Agents' indifference creates an ambiguous investment scenario. We assume that agents hold "ambiguous" beliefs on the per-industry profitability of their R&D investments. Investors' aversion towards ambiguity (in the sense of Gilboa-Schmeidler, 1989) eliminates the indeterminacy of the R&D investment problem. In particular, we prove that the asymmetric return-equalizing equilibrium is robust against a however small degree of investors' aversion to ambiguity.

• Item Type: MPRA Paper
• Language: English
• Keywords: R&D driven growth models, symmetry/asymmetry, ambiguity
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models; O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O32 - Management of Technological Innovation and R&D

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