A Model of Primary and Secondary Waves in Investment Cycles

Guido Fioretti

Microeconomics from EconWPA

Abstract: Schumpeter maintained that oscillations of macroeconomic variables are only the "secondary wave" of business cycles, a reflex of more fundamental "primary waves" at the microeconomic level caused by the innovative activity of entrepreneurs. Uniting Schumpeter's concern for innovation with Keynes' concern for uncertainty and expectations formation, this article focuses on the behaviour of entrepreneurs confronting uncertainty caused by innovation. Entrepreneurs' behaviour is reconstructed by modelling the functioning of their cognitive processes when innovations appear. Recognition of the possibilities opened up by a successful innovation generates a state of optimism in the minds of single entrepreneurs, which eventually propagates to the whole economy triggering an investments upswing. likewise, unsuccessful innovations can trigger a downswing.

Keywords: Uncertainty; Innovation; Investments; Cognitive Processes (search for similar items in EconPapers)
JEL-codes: D81 O30 E22 E27 E30 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ent
Date: 2002-08-18
Note: Type of Document - PDF; pages: 34; figures: included. Author's home page is at
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Related works:
Journal Article: A Model of Primary and Secondary Waves in Investment Cycles (2005)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpmi:0207014

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