On Robust Asymmetric Equilibria in Asymmetric R&D-Driven Growth Economies

Paolo Giordani and Luca Zamparelli

No 903, Working Papers CELEG from Dipartimento di Economia e Finanza, LUISS Guido Carli

Abstract: In R&D-driven growth models with asymmetric fundamentals the steady-state equilibrium R&D investments are industry-specifc and they are such that R&D returns are equalized across industries. Return equalization, however, makes investors indifferent as to where to target research and, hence, the problem of allocation of R&D investments across industries is indeterminate. Agents' indifference creates an ambiguous investment scenario. We assume that agents hold "ambiguous" beliefs on the per-industry profitability of their R&D investments. Investors' aversion towards ambiguity eliminates the indeterminacy of the investment problem. In particular, the asymmetric return-equalizing equilibrium is robust against a however small degree of investors' ambiguity aversion.

Keywords: R&D driven growth models; ambiguity; epsilon-contamination. (search for similar items in EconPapers)
JEL-codes: D81 O32 O41 (search for similar items in EconPapers)
Date: 2009
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Related works:
Journal Article: On robust asymmetric equilibria in asymmetric R&D-driven growth economies (2011)
Working Paper: On Robust Asymmetric Equilibria in Asymmetric R&D-Driven Growth Economies (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:lui:celegw:0903

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