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Distorted Innovation: Does the Market Get the Direction of Technology Right?

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  • Daron Acemoglu

Abstract

In the presence of markup differences, externalities, and other social effects, the direction of innovation can be systematically distorted. I build a simple model of endogenous technology to study distortions in the direction of innovation. Empirical findings across a number of different areas are consistent with this framework's predictions. I use data from several studies to estimate the framework's key parameters and combine them with rough estimates of differential externalities and markups to provide suggestive evidence that innovation distortions can be substantial in the context of industrial automation, health care, and energy, and that correcting them could have sizable welfare benefits.

Suggested Citation

  • Daron Acemoglu, 2023. "Distorted Innovation: Does the Market Get the Direction of Technology Right?," AEA Papers and Proceedings, American Economic Association, vol. 113, pages 1-28, May.
    • Handle: RePEc:aea:apandp:v:113:y:2023:p:1-28
    DOI: 10.1257/pandp.20231000
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    Cited by:

    1. Huwe, Vera & Henze, Levi T. & Steitz, Janek, 2023. "16 Gründe für schnelles Handeln: Kipppunkte und ihre Bedeutung für die Klimapolitik," Papers 277908, Dezernat Zukunft - Institute for Macrofinance, Berlin.
    2. Chen, Fanglin & Chen, Zhongfei & Zhang, Xin, 2024. "Belated stock returns for green innovation under carbon emissions trading market," Journal of Corporate Finance, Elsevier, vol. 85(C).
    3. Jin, Laiqun & Cao, Kairui & Li, Jiaye & Xu, Qunfang, 2024. "Information infrastructure construction and optimization of resources allocation among firms: Evidence from “Broadband China” strategy," International Review of Economics & Finance, Elsevier, vol. 91(C), pages 36-53.
    4. Jin, Laiqun & Dai, Jiaying & Jiang, Weijie & Cao, Kairui, 2023. "Digital finance and misallocation of resources among firms: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 66(C).
    5. Clemens Fuest & Daniel Gros & Philipp-Leo Mengel & Giorgio Presidente & Jean Jean Tirole, 2024. "EU Innovation Policy: How to Escape the Middle Technology Trap," EconPol Policy Reports Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    6. Naudé, Wim, 2023. "We Already Live in a Degrowth World, and We Do Not like It," IZA Discussion Papers 16191, Institute of Labor Economics (IZA).

    More about this item

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • I10 - Health, Education, and Welfare - - Health - - - General
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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