Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/59662
Authors: 
Garfagnini, Umberto
Strulovici, Bruno
Year of Publication: 
2010
Series/Report no.: 
Discussion Paper, Center for Mathematical Studies in Economics and Management Science 1516
Abstract: 
We analyze social learning and innovation in an overlapping generations model in which available technologies have correlated payoffs. Each generation experiments within a set of policies whose payoffs are initially unknown and drawn from the path of a Brownian motion with drift. Marginal innovation consists in choosing a technology within the convex hull of policies already explored and entails no direct cost. Radical innovation consists in experimenting beyond the frontier of that interval, and entails a cost that increases with the distance from the frontier, and may decrease with the best technology currently available. We study how successive generations alternate between radical and marginal innovation, in a pattern reminiscent of Schumpeterian cycles. Even when the underlying Brownian motion has a positive drift, radical innovation stops in finite time. New generations then fine-tune policies in search of a local optimum, converging to a single technology. Our analysis thus suggests that sustaining radical innovation in the long-run requires external intervention.
Subjects: 
innovation
Schumpeter cycles
experimentation
social learning
R&D
intergenerational externalities
JEL: 
D83
D92
O3
O4
Document Type: 
Working Paper

Files in This Item:
File
Size
338.47 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.