The stochastic implications of autonomous creation and destruction

Gregory W. Huffman

Journal of Economic Dynamics and Control, 2025, vol. 171, issue C

Abstract: A model of stochastic, autonomous creative destruction is developed to study a change in the volatility of inter-firm productivity shocks. The model shows that the observed increase in the variance of firm-specific technology shocks can explain the recent growth slowdown observed in recent decades. This also has implications for inequality. The economy exhibits a non-optimal rate of business destruction, and policies are developed to address this and to raise welfare. The model yields a novel asset pricing formula involving a survival function reflecting the expected random, productivity-dependent lifetime of the firm, and this has implications for the volatility of returns.

Keywords: Economic growth; Creative destruction; Innovation; Tax policy; Inequality; Asset pricing and returns (search for similar items in EconPapers)
JEL-codes: E0 G1 H2 O3 O4 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:171:y:2025:i:c:s0165188924002148

DOI: 10.1016/j.jedc.2024.105022

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