The Relationship between Profitability, Innovation and Technology Gap: A Basic Model
Krčál Ondřej ()
Additional contact information
Krčál Ondřej: Department of Economics, Masaryk University. Address: Lipová 41a, 602 00 Brno
Review of Economic Perspectives, 2014, vol. 14, issue 3, pages 215-231
This paper introduces a model of innovation that explains some of the stylized facts presented in recent empirical literature. In the model, firms choose R&D expenditures that maximize their expected profits under the assumption that R&D expenditures of firms might be constrained by the size of their profits. Optimal decisions of firms generate relationships between profitability and innovation of individual firms that may create the observed patterns at the industry level. In particular, the model is able to explain an inverted-U relationship between profitability and innovation in the industry together with decreasing or flat and concave relationships between profitability and the dispersion of productivity in the industry. Additionally, the paper investigates the parameter space for which the model generates the observed relationships.
References: Add references at CitEc
Citations Track citations by RSS feed
Downloads: (external link)
https://www.degruyter.com/view/j/revecp.2014.14.is ... -0011.xml?format=INT (text/html)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:vrs:reoecp:v:14:y:2014:i:3:p:17:n:2
Access Statistics for this article
Review of Economic Perspectives is currently edited by Antonín Slaný
More articles in Review of Economic Perspectives from De Gruyter Open
Series data maintained by Peter Golla ().