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Innovation by Heterogeneous Leaders

Tatsuro Iwaisako () and Kazuyoshi Ohki

No 15-30, Discussion Papers in Economics and Business from Osaka University, Graduate School of Economics

Abstract: We develop a Schumpeterian growth model that differs from the quality-ladder model in the following two ways. First, the size of the quality increment is determined by a random draw from a given distribution, and consequently leader firms are different in terms of their quality lead over their followers, and thus have different profit flows. Second, we assume that the R&D technology of leader firms exhibits diminishing returns, and consequently some leader firms engage in R&D activities. The results show that leaders with larger quality leads over their followers make smaller R&D investments and tend to be replaced more rapidly; this result is consistent with the behaviors of some previous leader firms such as Sony and Eastman-Kodak. Moreover, we show that subsidizing followers f R&D can promote leaders f aggregate R&D. Subsidies for followers f R&D promote their R&D and impede individual leader firms f R&D. However, promotion of followers f R&D decreases the number of leaders with larger quality leads and smaller R&D investments and increases that of leaders with smaller quality leads and larger R&D investments. If this positive effect from a changed distribution outweighs the negative effects on individual firms f R&D, promotion of followers f R&D increases leaders f aggregate R&D.

Keywords: Schumpeterian growth; Heterogeneous leaders; R&D subsidies (search for similar items in EconPapers)
JEL-codes: L16 O31 O38 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2015-11
New Economics Papers: this item is included in nep-cna, nep-ino, nep-net and nep-ure
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Journal Article: Innovation by Heterogeneous Leaders (2019) Downloads
Working Paper: Innovation by Heterogeneous Leaders (2018) Downloads
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