Optimal Diversity in Investments with Recombinant Innovation
Paolo Zeppini () and
Jeroen van den Bergh
No 08-12, CeNDEF Working Papers from Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance
The notion of dynamic, endogenous diversity and its role in theories of investment and technological innovation is addressed. We develop a formal model of an innovation arising from the combination of two existing modules with the objective to optimize the net benefits of diversity. The model takes into account increasing returns to scale and the effect of different dimensions of diversity on the probability of emergence of a third option. We obtain analytical solutions describing the dynamic behaviour of the values of the options. Next diversity is optimized by trading off the benefits of recombinant innovation and returns to scale. We derive conditions for optimal diversity under different regimes of returns to scale. Threshold values of returns to scale and recombination probability define regions where either specialization or diversity is the best choice. In the time domain, when the investment time horizon is beyond a threshold value, a diversified investment becomes the best choice. This threshold will be larger the higher the returns to scale.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed
Downloads: (external link)
http://cendef.uva.nl/binaries/content/assets/subsi ... on.pdf?1417182820745 (application/pdf)
Journal Article: Optimal diversity in investments with recombinant innovation (2013)
Working Paper: Optimal Diversity in Investments with Recombinant Innovation (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ams:ndfwpp:08-12
Access Statistics for this paper
More papers in CeNDEF Working Papers from Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance Dept. of Economics and Econometrics, Universiteit van Amsterdam, Roetersstraat 11, NL - 1018 WB Amsterdam, The Netherlands. Contact information at EDIRC.
Bibliographic data for series maintained by Cees C.G. Diks ().