What is the social value of innovations in Schumpeterian growth models? This issue is tackled by introducing the concept of Lindahl equilibrium in a standard endogenous growth model with vertical innovations which is extended by explicitly considering knowledge diffusion on a Salop (1979) circle. Completing markets by pricing knowledge allows us to compare the private value of innovations with the social one. This comparison sheds a new light on the consequences of non-rivalry of knowledge and of market incompleteness on innovators' behavior. Then, we notably revisit the issues of Pareto sub-optimality and of R&D incentives in presence of cumulative innovations.
Schumpeterian growth theory Lindahl equilibrium social value of innovations Pareto sub-optimality cumulative innovations knowledge spillovers