A Note on R&D Spillovers, Multiple Equilibria and Indeterminacy

Been-Lon Chen and Angus Chu

No 10-A002, IEAS Working Paper : academic research from Institute of Economics, Academia Sinica, Taipei, Taiwan

Abstract: Empirical studies often find significant and positive R&D spillovers across firms. In this note, we incorporate this spillover effect into a scale-invariant quality-ladder model. We find that the modified model features multiple steady states (i) a high-R&D steady state, (ii) a low-R&D steady state and (iii) a zero-R&D steady state. As for dynamics, when R&D spillovers are small, only the zero-R&D steady state is stable, and it emerges as a no-growth trap. In this case, the economy is subject sunspot fluctuations around this trap (i.e., local indeterminacy). When R&D spillovers are large, both the zero-R&D and high-R&D steady states are stable and locally indeterminate. In this case, increasing patent breadth may cause the high-R&D steady state to become unstable and the economy to converge to the no-growth trap. Therefore, strengthening patent protection may stifle innovation through the occurrence of a bifurcation.

Keywords: endogenous-growth model; R&D spillovers; indeterminacy; multiple equilibria; bifurcation (search for similar items in EconPapers)
JEL-codes: E32 O31 O41 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2010-02
New Economics Papers: this item is included in nep-dge, nep-ino and nep-sbm
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Related works:
Journal Article: On R&D spillovers, multiple equilibria and indeterminacy (2010)
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