Innovation and Growth under Private Information

Jose Gomez-Gonzalez and Oscar Valencia ()

Borradores de Economia from Banco de la Republica de Colombia

Abstract: We study endogenous growth within a model with occupational choice in which innovators produce ideas, within an asymmetric information framework. Each innovator has private knowledge of their production costs. Developers offer innovators non-linear contract schemes that affect both the number of innovators and the rate of economic growth. Two main results are obtained. First, the equilibrium contract under asymmetric information leads to the selection of highly-talented workers in R&D activities. Second, the growth rate is lower in the private information case when compared to the full-information benchmark due to the existence of an efficiency-rent extraction trade-off.

Keywords: Adverse selection; Innovation; Endogenous growth. (search for similar items in EconPapers)
JEL-codes: D82 O31 O33 (search for similar items in EconPapers)
Pages: 32
Date: 2014-09
New Economics Papers: this item is included in nep-cta, nep-gro, nep-ino and nep-knm
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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:845

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