IDEAS home Printed from https://ideas.repec.org/a/bpj/bejmac/v21y2021i1p73-96n7.html
   My bibliography  Save this article

Optimal Industrial Policies in a Two-Sector-R&D Economy

Author

Listed:
  • Sorek Gilad

    (Department of Economics, Auburn University, Auburn, Alabama, USA)

Abstract

This study characterizes welfare-enhancing industrial policies in a two-sector-R&D economy that incorporates both vertical and horizontal innovation. It elaborates on current welfare analyses of two-sector-R&D economies along two lines. First, it explores the welfare properties of non-drastic innovations whereas current analyses are confined to drastic innovations. It is shown that while the endogenously chosen size of drastic innovations is insufficient compared to social optimum, the size of non-drastic innovations may be excessive compared with the welfare maximizing one. Second, it explores welfare-enhancing policies designed to restrict innovators’ market power, whereas current policy analyses focus on R&D and market-entry subsidies. The welfare-maximizing policies presented here combine proper limitations on innovators’ market power along with a corresponding production tax (or subsidy). The limitations over innovators’ market power are aimed to support the optimal innovation size, and the corresponding production tax is set to support the optimal product variety span.

Suggested Citation

  • Sorek Gilad, 2021. "Optimal Industrial Policies in a Two-Sector-R&D Economy," The B.E. Journal of Macroeconomics, De Gruyter, vol. 21(1), pages 73-96, January.
    • Handle: RePEc:bpj:bejmac:v:21:y:2021:i:1:p:73-96:n:7
    DOI: 10.1515/bejm-2019-0197
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/bejm-2019-0197
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/bejm-2019-0197?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Peter C. B. Phillips & Donggyu Sul, 2009. "Economic transition and growth," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(7), pages 1153-1185, November.
    2. Philippe Aghion & Diego Comin & Peter Howitt & Isabel Tecu, 2016. "When Does Domestic Savings Matter for Economic Growth?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(3), pages 381-407, August.
    3. Peretto, Pietro F., 2007. "Corporate taxes, growth and welfare in a Schumpeterian economy," Journal of Economic Theory, Elsevier, vol. 137(1), pages 353-382, November.
    4. Chu, Angus C. & Pan, Shiyuan, 2013. "The Escape-Infringement Effect Of Blocking Patents On Innovation And Economic Growth," Macroeconomic Dynamics, Cambridge University Press, vol. 17(4), pages 955-969, June.
    5. Charles I. Jones, 1999. "Growth: With or Without Scale Effects?," American Economic Review, American Economic Association, vol. 89(2), pages 139-144, May.
    6. Alwyn Young, 1998. "Growth without Scale Effects," Journal of Political Economy, University of Chicago Press, vol. 106(1), pages 41-63, February.
    7. Pietro F. Peretto, 2011. "The Growth and Welfare Effects of Deficit-Financed Dividend Tax Cuts," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(5), pages 835-869, August.
    8. Katarina Keller & Panu Poutvaara & Andreas Wagener, 2009. "Military Draft And Economic Growth In Oecd Countries," Defence and Peace Economics, Taylor & Francis Journals, vol. 20(5), pages 373-393, October.
    9. Gene M. Grossman & Elhanan Helpman, 1991. "Quality Ladders in the Theory of Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 58(1), pages 43-61.
    10. Steven N. Durlauf & Paul A. Johnson & Jonathan R. W. Temple, 2009. "The Methods of Growth Econometrics," Palgrave Macmillan Books, in: Terence C. Mills & Kerry Patterson (ed.), Palgrave Handbook of Econometrics, chapter 24, pages 1119-1179, Palgrave Macmillan.
    11. repec:wly:soecon:v:82:3:y:2016:p:809-825 is not listed on IDEAS
    12. Chu, Angus C., 2011. "The welfare cost of one-size-fits-all patent protection," Journal of Economic Dynamics and Control, Elsevier, vol. 35(6), pages 876-890, June.
    13. Peretto, Pietro F, 1998. "Technological Change and Population Growth," Journal of Economic Growth, Springer, vol. 3(4), pages 283-311, December.
    14. Tatsuro Iwaisako & Koichi Futagami, 2013. "Patent protection, capital accumulation, and economic growth," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 52(2), pages 631-668, March.
    15. Singh, Nirvikar, 2009. "Essays on India’s Economic Growth," Santa Cruz Department of Economics, Working Paper Series qt9qr7z6x1, Department of Economics, UC Santa Cruz.
    16. Philippe Aghion & Peter Howitt, 2009. "The Economics of Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262012634, December.
    17. Lewis Evans & Neil Quigley & Jie Zhang, 2003. "Optimal price regulation in a growth model with monopolistic suppliers of intermediate goods," Canadian Journal of Economics, Canadian Economics Association, vol. 36(2), pages 463-474, May.
    18. repec:wly:soecon:v:83:2:y:2016:p:590-608 is not listed on IDEAS
    19. Chol-Won Li, 2003. "Endogenous Growth Without Scale Effects: Comment," American Economic Review, American Economic Association, vol. 93(3), pages 1009-1017, June.
    20. Peter Howitt, 1999. "Steady Endogenous Growth with Population and R & D Inputs Growing," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 715-730, August.
    21. Seppo Honkapohja & Frank Westermann, 2009. "Economic Growth in the European Union," Palgrave Macmillan Books, in: Seppo Honkapohja & Frank Westermann (ed.), Designing the European Model, chapter 8, pages 259-295, Palgrave Macmillan.
    22. Cozzi, Guido & Spinesi, Luca, 2006. "Intellectual Appropriability, Product Differentiation, And Growth," Macroeconomic Dynamics, Cambridge University Press, vol. 10(1), pages 39-55, February.
    23. Sorek, Gilad, 2011. "Patents and quality growth in OLG economy," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 690-699.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Angus C. Chu & Yuichi Furukawa & Lei Ji, 2016. "Patents, R&D subsidies, and endogenous market structure in a schumpeterian economy," Southern Economic Journal, John Wiley & Sons, vol. 82(3), pages 809-825, January.
    2. Gilad Sorek, 2017. "Market Power and Growth through Vertical and Horizontal Competition," Auburn Economics Working Paper Series auwp2017-01, Department of Economics, Auburn University.
    3. Magnus Henrekson & Dan Johansson & Johan Karlsson, 2024. "To Be or Not to Be: The Entrepreneur in Neo-Schumpeterian Growth Theory," Entrepreneurship Theory and Practice, , vol. 48(1), pages 104-140, January.
    4. Gray, Elie & Grimaud, André, 2014. "The Lindahl equilibrium in Schumpeterian growth models: Knowledge diffusion, social value of innovations and optimal R&D incentives," TSE Working Papers 14-469, Toulouse School of Economics (TSE).
    5. Elie Gray & André Grimaud, 2016. "The Lindahl equilibrium in Schumpeterian growth models," Journal of Evolutionary Economics, Springer, vol. 26(1), pages 101-142, March.
    6. Gray, Elie & Grimaud, André, 2014. "The Lindahl equilibrium in Schumpeterian growth models: Knowledge diffusion, social value of innovations and optimal R&D incentives," IDEI Working Papers 821, Institut d'Économie Industrielle (IDEI), Toulouse.
    7. Gray, Elie & Grimaud, André, 2016. "Using the Salop Circle to Study Scale Effects in Schumpeterian Growth Models: Why Inter-sectoral Knowledge Diffusion Matters," TSE Working Papers 16-676, Toulouse School of Economics (TSE).
    8. Grimaud, André & Gray, Elie, 2024. "Inter-Sectoral Knowledge Diffusion and Scale Effects in Schumpeterian Growth Models," TSE Working Papers 24-1577, Toulouse School of Economics (TSE).
    9. Elie Gray & André Grimaud, 2016. "Using the Salop Circle to Study Scale Effects in Schumpeterian Growth Models: Why Inter-sectoral Knowledge Diffusion Matters," CESifo Working Paper Series 6021, CESifo.
    10. Elie Gray & André Grimaud, 2014. "The Lindahl Equilibrium in Schumpeterian Growth Models: Knowledge Diffusion, Social Value of Innovations and Optimal R&D Incentives," CESifo Working Paper Series 4678, CESifo.
    11. Blagov, Boris & Funke, Michael, 2019. "The Regime-Dependent Evolution Of Credibility: A Fresh Look At Hong Kong'S Linked Exchange Rate System," Macroeconomic Dynamics, Cambridge University Press, vol. 23(6), pages 2434-2468, September.
    12. Sulekha Hembram & Souparna Maji & Sushil Kr. Haldar, 2019. "Club Convergence among the Major Indian States During 1982–2014: Does Investment in Human Capital Matter?," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 20(2), pages 184-204, September.
    13. Tobias Schlegel & Curdin Pfister & Dietmar Harhoff & Uschi Backes-Gellner, 2022. "Innovation effects of universities of applied sciences: an assessment of regional heterogeneity," The Journal of Technology Transfer, Springer, vol. 47(1), pages 63-118, February.
    14. Hof, Franz X. & Prettner, Klaus, 2019. "The quest for status and R&D-based growth," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 290-307.
    15. Fernandes, Leonardo H.S. & de Araújo, Fernando H.A. & Silva, Igor E.M. & Neto, Jusie S.P., 2021. "Macroeconophysics indicator of economic efficiency," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 573(C).
    16. Alireza Motameni, 2021. "The Impact of Oil Rent, Currency Overvaluation, and Institution Quality, on Economic Growth of Oil-Rich Countries: A Heterogeneous Panel Data Study," International Journal of Energy Economics and Policy, Econjournals, vol. 11(3), pages 483-493.
    17. Angus C. Chu & Yuichi Furukawa & Sushanta Mallick & Pietro Peretto & Xilin Wang, 2021. "Dynamic effects of patent policy on innovation and inequality in a Schumpeterian economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(4), pages 1429-1465, June.
    18. Rafael Torres Gaviria, 2022. "Horsemen of the apocalypse: The Mongol Empire and the great divergence," Documentos CEDE 20533, Universidad de los Andes, Facultad de Economía, CEDE.
    19. Philippe Aghion & Antonin Bergeaud & Matthieu Lequien & Marc J. Melitz & Thomas Zuber, 2021. "Opposing firm-level responses to the China shock: horizontal competition versus vertical relationships," CEP Discussion Papers dp1787, Centre for Economic Performance, LSE.
    20. Chu, Angus C. & Cozzi, Guido & Galli, Silvia, 2012. "Does intellectual monopoly stimulate or stifle innovation?," European Economic Review, Elsevier, vol. 56(4), pages 727-746.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejmac:v:21:y:2021:i:1:p:73-96:n:7. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyter.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.