Reconciling Models of Diffusion and Innovation: A Theory of the Productivity Distribution and Technology Frontier

33 Pages Posted: 30 Jan 2017

See all articles by Jess Benhabib

Jess Benhabib

New York University - Leonard N. Stern School of Business - Department of Economics; National Bureau of Economic Research (NBER)

Jesse Perla

University of British Columbia (UBC)

Christopher Tonetti

New York University (NYU)

Date Written: January 2017

Abstract

We study how innovation and technology diffusion interact to endogenously determine the shape of the productivity distribution and generate aggregate growth. We model firms that choose to innovate, adopt technology, or produce with their existing technology. Costly adoption creates a spread between the best and worst technologies concurrently used to produce similar goods. The balance of adoption and innovation determines the shape of the distribution; innovation stretches the distribution, while adoption compresses it. On the balanced growth path, the aggregate growth rate equals the maximum growth rate of innovators. While innovation drives long-run growth, changes in the adoption environment can influence growth by affecting innovation incentives, either directly, through licensing of excludable technologies, or indirectly, via the option value of adoption.

Suggested Citation

Benhabib, Jess and Perla, Jesse and Tonetti, Christopher, Reconciling Models of Diffusion and Innovation: A Theory of the Productivity Distribution and Technology Frontier (January 2017). NBER Working Paper No. w23095. Available at SSRN: https://ssrn.com/abstract=2907898

Jess Benhabib (Contact Author)

New York University - Leonard N. Stern School of Business - Department of Economics ( email )

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Jesse Perla

University of British Columbia (UBC) ( email )

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Christopher Tonetti

New York University (NYU) ( email )

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New York, NY 10003-711
United States

HOME PAGE: http://www.christophertonetti.com/

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