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The stochastic implications of autonomous creation and destruction

Author

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  • Huffman, Gregory W.

Abstract

A model of stochastic, autonomous creative destruction is developed to study a change in the volatility of inter-firm productivity shocks. The model shows that the observed increase in the variance of firm-specific technology shocks can explain the recent growth slowdown observed in recent decades. This also has implications for inequality. The economy exhibits a non-optimal rate of business destruction, and policies are developed to address this and to raise welfare. The model yields a novel asset pricing formula involving a survival function reflecting the expected random, productivity-dependent lifetime of the firm, and this has implications for the volatility of returns.

Suggested Citation

  • Huffman, Gregory W., 2025. "The stochastic implications of autonomous creation and destruction," Journal of Economic Dynamics and Control, Elsevier, vol. 171(C).
    • Handle: RePEc:eee:dyncon:v:171:y:2025:i:c:s0165188924002148
    DOI: 10.1016/j.jedc.2024.105022
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    More about this item

    Keywords

    Economic growth; Creative destruction; Innovation; Tax policy; Inequality; Asset pricing and returns;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • G1 - Financial Economics - - General Financial Markets
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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