The Dynamics of Innovation (superseded by DP #1546)

Umberto Garfagnini and Bruno Strulovici

Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: We analyze social learning and innovation in an overlapping generations model in which available technologies have correlated payoffs. Each generation experiments within a set of policies whose payoffs are initially unknown and drawn from the path of a Brownian motion with drift. Marginal innovation consists in choosing a technology within the convex hull of policies already explored and entails no direct cost. Radical innovation consists in experimenting beyond the frontier of that interval, and entails a cost that increases with the distance from the frontier, and may decrease with the best technology currently available. We study how successive generations alternate between radical and marginal innovation, in a pattern reminiscent of Schumpeterian cycles. Even when the underlying Brownian motion has a positive drift, radical innovation stops in finite time. New generations then fine-tune policies in search of a local optimum, converging to a single technology. Our analysis thus suggests that sustaining radical innovation in the long-run requires external intervention.

Keywords: Schumpeter cycles; experimentation; social learning; R&D; intergenerational externalities JEL Classification Numbers: D83; D92; O3; O4 (search for similar items in EconPapers)
Date: 2010-12-09
New Economics Papers: this item is included in nep-ino and nep-knm
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.kellogg.northwestern.edu/research/math/papers/1516.pdf main text (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:nwu:cmsems:1516

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014. Contact information at EDIRC.
Bibliographic data for series maintained by Fran Walker ( this e-mail address is bad, please contact ).