Breakthrough innovations and welfare: The role of innovators' loss aversion and experience

Daniela Grieco

No 20/2010, Working Papers from University of Verona, Department of Economics

Abstract: Technological refinements appears to be much more frequent than breakthrough innovations. We argue that this could be the result of an optimizing choice when the innovation revenues are exposed to Knightian uncertainty and innovators are loss-averse. The innovator's choice between breakthrough and incremental innovations is analyzed in the context of a neo-Schumpeterian growth model that accounts for the introduction of new goods and related sunk costs. The results show that the welfare generated by breakthrough innovations drops dramatically when agents are uncertainty-averse and/or loss-averse, but rises as innovators' experience increases.

Keywords: Incremental innovation; Breakthrough innovation; Uncertainty; Loss aversion; Experience (search for similar items in EconPapers)
JEL-codes: D60 D81 O32 (search for similar items in EconPapers)
Pages: 25
Date: 2010-12
New Economics Papers: this item is included in nep-ino, nep-pbe, nep-tid and nep-upt
References: Add references at CitEc
Citations:

Downloads: (external link)
http://dse.univr.it//workingpapers/WP_201210.pdf First version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ver:wpaper:20/2010

Access Statistics for this paper

More papers in Working Papers from University of Verona, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Michael Reiter ().