An Uncertainty-Based Explanation of Symmetric

Guido Cozzi, Paolo Giordani and Luca Zamparelli

No 06-08, Sonderforschungsbereich 504 Publications from Sonderforschungsbereich 504, Universität Mannheim, Sonderforschungsbereich 504, University of Mannheim

Abstract: We provide a re-foundation of the symmetric growth equilibrium characterizing the research sector of all vertical R&D-driven growth models. This result does not rely on the usual assumption of a symmetric expectation on the future per-sector R&D expenditure. Indeed, with this structure of expectations, returns in R&D are equalized, and agents turn out to be indifferent as to where targeting research: hence, the problem of the allocation of R&D investments across sectors is indeterminate. In line with the ’true’ Schumpeterian perspective, we solve this indeterminacy by allowing for decision makers strictly uncertain about the future per-sector distribution of R&D efforts. By using the Gilboa-Schmeidler’s MEU decision rule, we prove that the symmetric structure of R&D investment is the unique rational expectations (RE) equilibrium compatible with uncertainty-averse agents adopting a maximin strategy.

Pages: 15 pages
Date: 2006-08-21
New Economics Papers: this item is included in nep-knm
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504, at the University of Mannheim, is gratefully acknowledged.
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