Quality Ladders, Competition and Endogenous Growth

Michele Boldrin and David Levine

No 277, 2008 Meeting Papers from Society for Economic Dynamics

Abstract: We examine a competitive theory in which new ideas are introduced only when diminishing returns to the use of existing ideas sets in. After an idea is introduced, the capital associated with that idea expands, and the price of the idea falls. Once the price falls far enough, it becomes profitable to introduce a new, costlier, idea. The resulting competitive theory is consistent with fixed costs of innovation, no more difficult than the existing theory of monopolistic innovation, and accounts for the same basic facts. However, there is evidence that innovation is driven by diminishing returns on existing ideas – a fact that the existing theory does not account for.

Date: 2008
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Working Paper: Quality Ladders, Competition and Endogenous Growth (2010)
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