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Random walk to innovation: Why productivity follows a power law

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  • Ghiglino, Christian

Abstract

This paper examines a search model in which knowledge is created as rational, but poorly informed, innovators obtain new ideas from combinations of existing ideas. We assume that the productivity of an idea is stochastic and depends on the productivity of the parental ideas. Importantly, we assume that the contribution of these parents to the productivity of the final idea is enhanced by prior use of these in knowledge creation. We identify conditions on the search costs leading to two properties: 1) the tail of the distribution of the productivity of innovations is a power law, and 2) the number of citations, i.e., times an idea is used in the process of innovation, follows a displaced power law. Both these properties are consistent with the available empirical evidence on the productivity of innovations and on patent citations.

Suggested Citation

  • Ghiglino, Christian, 2012. "Random walk to innovation: Why productivity follows a power law," Journal of Economic Theory, Elsevier, vol. 147(2), pages 713-737.
    • Handle: RePEc:eee:jetheo:v:147:y:2012:i:2:p:713-737
    DOI: 10.1016/j.jet.2011.02.004
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    Citations

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    Cited by:

    1. Kjetil Storesletten & Bo Zhao & Fabrizio Zilibotti, 2019. "Business Cycle during Structural Change: Arthur Lewis' Theory from a Neoclassical Perspective," Cowles Foundation Discussion Papers 2191, Cowles Foundation for Research in Economics, Yale University.
    2. Yang, Jangho & Heinrich, Torsten & Winkler, Julian & Lafond, François & Koutroumpis, Pantelis & Farmer, J. Doyne, 2019. "Measuring productivity dispersion: a parametric approach using the Lévy alpha-stable distribution," MPRA Paper 96474, University Library of Munich, Germany.
    3. Kevin Genna & Christian Ghiglino & Kazuo Nishimura & Alain Venditti, 2024. "Knowledge-based structural change," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 78(4), pages 1333-1388, December.
    4. Alex Centeno, 2022. "A Structural Model for Detecting Communities in Networks," Papers 2209.08380, arXiv.org, revised Oct 2022.
    5. Clancy, Matthew S., 2018. "Inventing by combining pre-existing technologies: Patent evidence on learning and fishing out," Research Policy, Elsevier, vol. 47(1), pages 252-265.
    6. Acemoglu, Daron, 2012. "Introduction to economic growth," Journal of Economic Theory, Elsevier, vol. 147(2), pages 545-550.
    7. Lahr, Henry, 2023. "Fat tails in private equity fund returns: The smooth double Pareto distribution," International Review of Financial Analysis, Elsevier, vol. 86(C).
    8. Daron Acemoglu & Pablo D. Azar, 2020. "Endogenous Production Networks," Econometrica, Econometric Society, vol. 88(1), pages 33-82, January.
    9. Shin, Euncheol, 2021. "Social network formation and strategic interaction in large networks," Mathematical Social Sciences, Elsevier, vol. 111(C), pages 34-54.
    10. , & Lorenz, Jan & ,, 2016. "Innovation vs. imitation and the evolution of productivity distributions," Theoretical Economics, Econometric Society, vol. 11(3), September.
    11. Pierre Cotterlaz, 2021. "Three essays on spatial frictions [Trois essais sur les frictions spatiales]," SciencePo Working papers Main tel-03436173, HAL.
    12. Michael König & Kjetil Storesletten & Zheng Song & Fabrizio Zilibotti, 2022. "From Imitation to Innovation: Where Is All That Chinese R&D Going?," Econometrica, Econometric Society, vol. 90(4), pages 1615-1654, July.
    13. Pierre Cotterlaz, 2021. "Three essays on spatial frictions [Trois essais sur les frictions spatiales]," SciencePo Working papers tel-03436173, HAL.
    14. Teteryatnikova, Mariya, 2014. "Systemic risk in banking networks: Advantages of “tiered” banking systems," Journal of Economic Dynamics and Control, Elsevier, vol. 47(C), pages 186-210.
    15. , David, 2016. "The formation of networks with local spillovers and limited observability," Theoretical Economics, Econometric Society, vol. 11(3), September.
    16. Ghiglino, Christian & Tabasso, Nicole, 2015. "The dynamics of innovations and citations," Economics Letters, Elsevier, vol. 131(C), pages 94-97.
    17. Pablo D. Azar, 2021. "Moore’s Law and Economic Growth," Staff Reports 970, Federal Reserve Bank of New York.
    18. Yang, Jangho & Heinrich, Torsten & Winkler, Julian & Lafond, François & Koutroumpis, Pantelis & Farmer, J. Doyne, 2019. "Measuring productivity dispersion: a parametric approach using the Lévy alpha-stable distribution," MPRA Paper 96474, University Library of Munich, Germany.

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    More about this item

    Keywords

    Economic growth; Technological progress; Innovations; Random growing networks; Ideas; Scale-free distributions; Patent citations;
    All these keywords.

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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