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, 215-231

Abstract: 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.

Keywords: innovation; technology gap; profits; inverted-U relationship (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.2478/revecp-2014-0011 (text/html)

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:vrs:reoecp:v:14:y:2014:i:3:p:17:n:2

DOI: 10.2478/revecp-2014-0011

Access Statistics for this article

Review of Economic Perspectives is currently edited by Antonín Slaný

More articles in Review of Economic Perspectives from Sciendo
Bibliographic data for series maintained by Peter Golla ().