Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/222586 
Year of Publication: 
2020
Series/Report no.: 
Economics Working Paper Series No. 20/331
Publisher: 
ETH Zurich, CER-ETH - Center of Economic Research, Zurich
Abstract: 
We develop a model to rationalize and examine so-called "research bubbles", i.e. research activities based on overoptimistic beliefs about the impact of this research on the economy. Research bubbles occur when researchers selfselect into research activities and the government aggregates the assessment of active researchers on the way advances in research may spur innovation and growth. In an overlapping generations framework, we study the occurrence of research bubbles and show that they tend to be welfare-improving. Particular forms can even implement the socially optimal solution. However, research bubbles can collapse, and we discuss institutional devices and the role of debt financing that ensure the sustainability of such bubbles. Finally, we demonstrate that research bubbles emerge in various extensions of our baseline model.
Subjects: 
Endogenous Growth
Basic Research and Macro-Based Behavioral Economics
JEL: 
E02
E71
O32
O41
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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