Knowledge Spillover Entrepreneurship in an Endogenous Growth Model
51 Pages Posted: 18 Jul 2013
Date Written: December 10, 2012
This paper challenges the key assumption in "idea based growth models" that innovation rents ultimately reward the creation of knowledge. In modern capitalist economies the agents that commercialize new ideas, the entrepreneurs, receive the bulk of the innovation rents and are generally the residual claimant. We develop a model that separates invention from innovation where new ideas are a costless spillover from profit motivated corporate R&D aimed at improving existing production processes. We then show that a central planner can improve over the decentralized equilibrium by reallocating resources between R&D and entrepreneurship. The optimal allocation between commercializers and inventors depends on the relative strength of down- and upstream knowledge spillovers.
Keywords: Innovation Rents, Endogenous Growth, R&D, Entrepreneurship, Incentives, Knowledge Spillovers
JEL Classification: L26, O31, O33, O41, R58
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