Innovation by entrants and incumbents
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Acemoglu10-12.pdf
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435.95 KB
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Author(s)
Cao, Dan
Acemoglu, K. Daron
Date Issued
January 2015
Journal
Journal of Economic Theory
Publisher
Elsevier
Citation
Acemoglu, Daron, and Cao, Dan. “Innovation by Entrants and Incumbents.” Journal of Economic Theory 157 (May 2015): 255–294 © 2015 Elsevier Inc
Version
Original manuscript
Abstract
We extend the basic Schumpeterian endogenous growth model by allowing incumbents to undertake innovations to improve their products, while entrants engage in more “radical” innovations to replace incumbents. Our model provides a tractable framework for the analysis of growth driven by both entry of new firms and productivity improvements by continuing firms. The model generates a non-degenerate equilibrium firm size distribution driven by entry of new firms and expansion exit of existing firms. When there is also costly imitation preventing any sector from falling too far below the average, the stationary firm size distribution is Pareto with an exponent approximately equal to one (the so-called “Zipf distribution”).
MIT Department
Massachusetts Institute of Technology. Department of Economics
Terms of Use
Creative Commons Attribution-NonCommercial-NoDerivs License
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DOI of Published Version
https://doi.org/10.1016/J.JET.2015.01.001
