Leadership Cycles

48 Pages Posted: 21 Nov 2009

Multiple version iconThere are 2 versions of this paper

Date Written: November 20, 2009

Abstract

We study a quality-ladder model of endogenous growth that produces stochastic leadership cycles. Over a cycle, industry leaders can innovate several successive times in the same industry, gradually increasing the magnitude of their technological lead before being replaced by a new entrant. Initially, new leaders are eager to enlarge their lead and do much of the research, but if they innovate repeatedly, their propensity to invest in R&D decreases. Eventually they stop doing research altogether, and as they are overtaken a new cycle starts. The model generates a skewed firm size distribution and a deviation from Gibrat's law that accord with the empirical evidence. We also consider various policy measures, showing that in some cases policy should favour R&D by incumbents, not outsiders, and that stronger patent protection may reduce innovation and growth.

Keywords: endogenous growth, quality ladder, innovation by leaders, patent policy

JEL Classification: O03, O04

Suggested Citation

Denicolo, Vincenzo and Zanchettin, Piercarlo, Leadership Cycles (November 20, 2009). Available at SSRN: https://ssrn.com/abstract=1510081 or http://dx.doi.org/10.2139/ssrn.1510081

Vincenzo Denicolo (Contact Author)

University of Bologna ( email )

Strada Maggiore 45
Bologna, 40125
Italy

Piercarlo Zanchettin

University of Leicester ( email )

Department of Economics
Leicester, LE1 7RH
United Kingdom

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