Innovation, Industry Equilibrium, and Discount Rates

Maria Cecilia Bustamante, Francesco D'Acunto and Francesca Zucchi

No 21849, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study how discount rates affect the level and composition of innovation within an industry. We develop a model in which higher discount rates need not reduce innovation in industry equilibrium, challenging conventional wisdom. While higher discount rates deter entry, effectively acting as entry barriers, they stimulate innovation along the intensive margin, potentially increasing aggregate industry innovation on net. The data support these predictions. The effects are stronger in more R&D intensive industries and industries with greater exposure to systematic risk. Additionally, higher discount rates foster explorative rather than exploitative innovation.

Keywords: Innovation; Risk premia; Creative destruction (search for similar items in EconPapers)
JEL-codes: G12 G31 O31 (search for similar items in EconPapers)
Date: 2026-08
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP21849 (application/pdf)

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:cpr:ceprdp:21849

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP21849

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().