Innovate or Imitate? Behavioural Technological Change
Tinbergen Institute Discussion Paper 13-099/II
30 Pages Posted: 27 Jul 2013
Date Written: July 19, 2013
We propose a behavioural model of technological change with evolutionary switching between boundedly rational costly innovators and free imitators, and study the endogenous interplay of innovation decisions, market price dynamics and technological progress. Innovation and imitation are strategic substitutes and exhibit negative feedback. Endogenous technological change is the cumulative outcome of innovation decisions. There are three scenarios: market breakdown, Schumpeterian rents and learning curves. The latter is characterized by an increasing fraction of innovators when demand is elastic, while inelastic demand allows technological progress with shrinking innovation effort. Model simulations are compared to empirical data of two industrial sectors.
Keywords: C62, C73, D21, O33
JEL Classification: discrete choice, innovation patterns, learning curves, switching behavior
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