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Optimal R&D investment with learning-by-doing: Multiple steady-states and thresholds

Greiner, Alfred and Bondarev, Anton. (2017) Optimal R&D investment with learning-by-doing: Multiple steady-states and thresholds. WWZ Working Papers, 2017 (06).

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Official URL: https://edoc.unibas.ch/61311/

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Abstract

In this paper we present an inter-temporal optimization problem of a representative R&D firm that simultaneously invests in horizontal and vertical innovations. We posit that learning-by-doing makes the process of quality improvements a positive function of the number of existing technologies with the function displaying a convex-concave form. We show that multiple steady-states can arise with two being saddle point stable and one unstable with complex conjugate eigenvalues. Thus, a threshold with respect to the variety of technologies exists that separates the two basins of attractions. From an economic point of view, this implies that a lock-in effect can occur such that it is optimal for the firm to produce only few technologies at a low quality when the initial number of technologies falls short of the threshold. Hence, history matters as concerns the state of development implying that past investments and innovations determine whether the firm produces a large or a small variety of high- or low-quality technologies, respectively.
Faculties and Departments:06 Faculty of Business and Economics > Departement Wirtschaftswissenschaften > Professuren Wirtschaftswissenschaften > Umweltökonomie (Krysiak)
12 Special Collections > WWZ Publications > WWZ Discussion Papers and Working Papers
UniBasel Contributors:Bondarev, Anton A.
Item Type:Working Paper
Publisher:WWZ, University of Basel
Number of Pages:18
Note:Publication type according to Uni Basel Research Database: Discussion paper / Internet publication
Language:English
Identification Number:
  • handle: RePEc:bsl:wpaper:2017/06
Last Modified:07 Mar 2018 13:01
Deposited On:07 Mar 2018 13:01

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