Leadership Cycles

52 Pages Posted: 23 Apr 2010

Multiple version iconThere are 2 versions of this paper

Date Written: April 23, 2010

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: Technological Lead, Innovation, R&D

JEL Classification: O32, O4

Suggested Citation

Denicolo, Vincenzo and Zanchettin, Piercarlo, Leadership Cycles (April 23, 2010). FEEM Working Paper No. 35.2010, Available at SSRN: https://ssrn.com/abstract=1594765 or http://dx.doi.org/10.2139/ssrn.1594765

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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