Leadership Cycles in a Quality‐Ladder Model of Endogenous Growth

33 Pages Posted: 3 Jun 2012

Date Written: June 2012

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 sector before being replaced by a new entrant. Initially, new leaders do much of the research but they then tend to rest on their laurels and are eventually overtaken. The model generates a skewed firm size distribution and a deviation from Gibrat's law that accord with the empirical evidence. We also find conditions under which policy should favour R&D by incumbents, not outsiders, and show that stronger patent protection may reduce innovation and growth.

Suggested Citation

Denicolo, Vincenzo and Zanchettin, Piercarlo, Leadership Cycles in a Quality‐Ladder Model of Endogenous Growth (June 2012). The Economic Journal, Vol. 122, Issue 561, pp. 618-650, 2012, Available at SSRN: https://ssrn.com/abstract=2073108 or http://dx.doi.org/10.1111/j.1468-0297.2012.02510.x

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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