Innovation by entrants and incumbents

By Daron Acemoglu, Dan Cao. Journal of Economics Theory, 2015

311 citations recorded by the source corpus.

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. Unlike in the basic Schumpeterian models, subsidies to potential entrants might decrease economic growth because they discourage productivity improvements by incumbents in response to reduced entry, which may outweigh the positive effect of greater creative destruction. As the model features entry of new firms and expansion and exit of existing firms, it also generates a non-degenerate equilibrium firm size distribution. We show that, 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").

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/0655f8faa873a3c79d2961cf6fbbfa9e74c96327

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Citations in the corpus

Innovation and firm growth: Does firm age play a role? (2016, unknown): “Hence, this evidence is in line with Schumpeterian creative destruction where potential entrants undertake radical R&D in order to replace the mature firms, and incumbents tend to undertake incremental R&D (Klette and Kortum, 2004; Acemoglu and Cao, 2010).”
What Do We Learn from Schumpeterian Growth Theory (2013, unknown): “16 Aghion et al. (2001) and Acemoglu and Akcigit (2012) analyze the more general case where there is no limit to how far ahead the leader can get.”
Competition Policy and Productivity Growth: An Empirical Assessment (2013, methodology): “Following Becker’s (1968) theory of optimal deterrence, we consider that the level of deterrence of a competition policy is determined by three fundamental elements: the size of the sanctions, the probability of detection and conviction, and the probability of errors.”
Back to Basics: Basic Research Spillovers, Innovation Policy and Growth (2013, unknown): “Klette and Kortum (2004) Lentz and Mortensen (2008), Akcigit and Kerr (2010), Acemoglu and Cao (2010)), characterizing the innovation rates and size dynamics of R&D conducting firms.”
Directing technical change from fossil-fuel to renewable energy innovation: An application using firm-level patent data (2015, unknown): “A main result from Acemoglu et al. (2012a) is that when the clean and dirty inputs are strong substitutes, the market size and initial productivity advantage of dirty inputs will direct innovation towards the dirty sector, leading to an environmental disaster. In that case, government intervention i”
Firm age and performance (2017, background): “Regarding innovation, theoretical work has put forward that young firms are more likely to perform radical innovation (Acemoglu and Cao 2015). However, how can young firms be expected to be more innovative when they have to start from scratch, and lack capabilities, experience and routines? Empirica”