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Title:Social learning and innovation cycles PDF Logo
Authors:Garfagnini, Umberto
Strulovici, Bruno
Issue Date:2012
Series/Report no.:Discussion Paper, Center for Mathematical Studies in Economics and Management Science 1546
Abstract:We study social learning and innovation in an overlapping generations model, emphasizing the trade-off between marginal innovation (combining existing technologies) and radical innovation (breaking new ground). We characterize both short-term and long-term dynamics of innovation, and the intergenerational accumulation of knowledge. Innovation cycles emerge endogenously, but the number of cycles is finite almost surely, and radical innovation terminates in finite time. We identify a negative relationship between past successes and the magnitude of radical innovation, combining insights from the multi-armed bandit literature with a spatial representation of innovation. Past successes reduce the incremental value of experimentation, and result in less ambitious innovation. In our framework, patents promote radical innovation through two channels: by increasing the expected benefit of radical innovation and by increasing the cost of marginal innovation. Our analysis suggests that sustaining radical innovation in the long-run requires external intervention.
Subjects:Social Learning
Innovation
Technological Change
Experimentation
JEL:D83
O3
Document Type:Working Paper
Appears in Collections:Discussion Papers, Kellogg School of Management, Northwestern University

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