The Effects of Probabilistic Innovations on Schumpeterian Economic Growth in a Creative Region
RIT Economics Department Working Paper No. 15-08
29 Pages Posted: 24 Nov 2015
There are 2 versions of this paper
The Effects of Probabilistic Innovations on Schumpeterian Economic Growth in a Creative Region
The Effects of Probabilistic Innovations on Schumpeterian Economic Growth in a Creative Region
Date Written: November 23, 2015
Abstract
We analyze the impact that stochastically occurring innovations have on Schumpeterian economic growth in a region that is creative in the sense of Richard Florida. Our analysis leads to four findings. First, we delineate the so called balanced growth path (BGP) equilibrium and then compute the BGP growth rate in our creative region. Second, we discuss why the lower limit of the support of the random variable that describes the outcome of innovation quality improvements, takes the value that it does. Third, we solve the social planner’s problem and derive the Pareto optimal growth rate in our creative region. Finally, we compare the BGP and the Pareto optimal growth rates, we discuss when there is either too much or too little innovation, and we conclude by commenting on the implications of our findings for future research on Schumpeterian economic growth in creative regions.
Keywords: Creative Capital; Creative Region; Innovation; Schumpeterian Economic Growth; Uncertainty
JEL Classification: R11; R13; O31
Suggested Citation: Suggested Citation