Innovation, Growth, and Welfare-Improving Cycles

Patrick Francois, Shouyong Shi

Research output: Contribution to journalArticle

9 Citations (Scopus)

Abstract

This paper establishes necessary and sufficient conditions for the existence of stationary cycles in an economy comprising independent investing firms. The economy is not subject to aggregate uncertainty, investors have no direct complementarities, and all agents act independently. The cycle arises due to general equilibrium contemporaneous complementarities between investors devoting resources to innovation which yields temporary profits. With numerical examples we show that there are multiple cyclical equilibria that differ in the cycle length. Welfare and the long-run growth rate can be increased from an equilibrium where innovations occur rapidly to one with longer cycles; however, there exists a finite cycle length that maximizes welfare.Journal of Economic LiteratureClassification Numbers: E32, L16, O31, O41.

Original languageEnglish (US)
Pages (from-to)226-257
Number of pages32
JournalJournal of Economic Theory
Volume85
Issue number2
DOIs
StatePublished - Apr 1 1999

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Innovation
Complementarity
Investors
General equilibrium
Investing
Multiple equilibria
Long-run growth
Aggregate uncertainty
Profit
Economics
Resources

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

Cite this

Francois, Patrick ; Shi, Shouyong. / Innovation, Growth, and Welfare-Improving Cycles. In: Journal of Economic Theory. 1999 ; Vol. 85, No. 2. pp. 226-257.
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Innovation, Growth, and Welfare-Improving Cycles. / Francois, Patrick; Shi, Shouyong.

In: Journal of Economic Theory, Vol. 85, No. 2, 01.04.1999, p. 226-257.

Research output: Contribution to journalArticle

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