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Schumpeterian Profits and the Alchemist Fallacy

William D. Nordhaus

Yale University - Department of Economics; National Bureau of Economic Research (NBER)

April 2, 2005

Yale Economic Applications and Policy Discussion Paper No. 6

The present study examines the importance of Schumpeterian profits in the United States economy. Schumpeterian profits are defined as those profits that arise when firms are able to appropriate the returns from innovative activity. The paper derives the underlying equations for Schumpeterian profits. It then estimates the value of these profits for the non-farm business economy and for major industries. It concludes that only a miniscule fraction of the social returns from technological advances over the 1948-2001 period was captured by producers, indicating that most of the benefits of technological change are passed on to consumers rather than captured by producers. These results indicate that the bubble of new-economy stocks in the 1990s resulted from the alchemist fallacy.

Number of Pages in PDF File: 27

Keywords: Schumpeter, profits, innovation

JEL Classification: O30, O31, O4

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Date posted: October 5, 2005  

Suggested Citation

Nordhaus, William D., Schumpeterian Profits and the Alchemist Fallacy (April 2, 2005). Yale Economic Applications and Policy Discussion Paper No. 6. Available at SSRN: http://ssrn.com/abstract=820309

Contact Information

William D. Nordhaus (Contact Author)
Yale University - Department of Economics ( email )
28 Hillhouse Ave
New Haven, CT 06520-8268
United States
203-432-3598 (Phone)
203-432-5779 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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