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Emergent Pareto-Levy Distributed Returns to Research in a Multi-Agent Model of Endogenous Technical Change

Michael Makowsky () and David Levy

No 2010-10, Working Papers from Towson University, Department of Economics

Abstract: We build a multi-agent model of endogenous technical change in which heterogeneous investments in patented knowledge generate Pareto-Levy and lognormal distributed returns to investment in research from very weak distributional assumptions. Firms produce a homogenous good and a public stock of knowledge accumulates from the expired patents of privately produced knowledge. Increasing returns to scale are derivative of endogenously produced technology, but the market remains competitive due to imperfect information and costly household search. The interaction of heterogeneous knowledge, research investment, revenues, and search outcomes across agents endogenously generates the empirically observed but seemingly idiosyncratic Pareto- Levy and lognormal mixture distribution of market returns. These distributional characteristics have ramifications for endogenous growth models given the importance of extreme values and market leaders in technological advancement. Average growth rates in the model have a global maximum at a finite, non-zero patent length. The distribution of growth rates is characterized by �fat tails.� The variance of growth rates increases with patent length.

Keywords: patents; endogenous growth; increasing returns to scale; price dispersion; search; heterogeneous agents. (search for similar items in EconPapers)
JEL-codes: C63 L11 O33 D83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp, nep-dge, nep-ino, nep-ipr and nep-pr~
Date: 2010-04, Revised 2010-04
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Persistent link: https://EconPapers.repec.org/RePEc:tow:wpaper:2010-10

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