The R&D Incentives of Industry Leaders

This paper presents a model to explain why industry leader firms often devote substantial resources to R&D activities and explores the welfare implications of this investment. The key new assumption is that industry leaders can improve their own products more easily than can other firms. When industry leaders have R&D cost advantages, it is optimal for the government to subsidize the R&D expenditures of all firms, subsidize the production expenditures of industry leaders, and tax the profits of new industry leaders. Without government intervention, market forces generate too much creative destruction. Copyright 1999 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

[1]  K. Arrow.  Economic Welfare and the Allocation of Resources for Invention , 1962 .

[2]  Samuel Kortum,et al.  Equilibrium R&D and the patent-R&D ratio: U.S. evidence , 1993 .

[3]  Michael S. Malone,et al.  The microprocessor - a biography , 1995 .

[4]  Frederic M. Scherer,et al.  Innovation and Growth: Schumpeterian Perspectives , 1986 .

[5]  P. Segerstrom.  The Long-Run Growth Effects of R&D Subsidies , 2000 .

[6]  C. F. Phillips.  Industrial Market Structure and Economic Performance , 1971 .

[7]  Peter Thompson,et al.  Technological opportunity and the growth of knowledge: A Schumpeterian approach to measurement , 1996 .

[8]  Firm Level Behavior in Repeated R&D Races , 1998 .

[9]  Joseph A. Schumpeter,et al.  The Instability of Capitalism , 1928 .

[10]  Franco Malerba,et al.  Schumpeterian Patterns of Innovation , 1995 .

[11]  Knowledge diffusion in an endogenous growth model , 1993 .

[12]  Samuel Kortum,et al.  Research, Patenting, and Technological Change , 1997 .

[13]  Charles I. Jones,et al.  R & D-Based Models of Economic Growth , 1995, Journal of Political Economy.

[14]  P. Segerstrom.  Innovation, Imitation, and Economic Growth , 1991, Journal of Political Economy.

[15]  William A. Brock,et al.  Stochastic methods in economics and finance , 1982 .

[16]  T. C. Edens,et al.  Economic Growth , 1957, The Journal of Economic History.

[17]  Nancy L. Stokey.  R&D and Economic Growth , 1995 .

[18]  M. Kremer.  Population Growth and Technological Change: One Million B.C. to 1990 , 1993 .

[19]  P. Romer.  Endogenous Technological Change , 1989, Journal of Political Economy.

[20]  Peter Thompson,et al.  Growth and trustified capitalism , 1994 .

[21]  P. Howitt.  Steady Endogenous Growth with Population and R. & D. Inputs Growing , 1999, Journal of Political Economy.

[22]  G. Grossman,et al.  Quality Ladders in the Theory of Growth , 1989 .

[23]  M. Lessnoff.  Capitalism, Socialism and Democracy , 1979 .