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Leadership Cycles

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  • Denicolo, Vincenzo
  • Zanchettin, Piercarlo

Abstract

We study a quality-ladder model of endogenous growth that produces stochastic leadership cycles. Over a cycle, industry leaders can innovate several successive times in the same industry, gradually increasing the magnitude of their technological lead before being replaced by a new entrant. Initially, new leaders are eager to enlarge their lead and do much of the research, but if they innovate repeatedly, their propensity to invest in R&D decreases. Eventually they stop doing research altogether, and as they are overtaken a new cycle starts. The model generates a skewed firm size distribution and a deviation from Gibrat’s law that accord with the empirical evidence. We also consider various policy measures, showing that in some cases policy should favour R&D by incumbents, not outsiders, and that stronger patent protection may reduce innovation and growth.

Suggested Citation

  • Denicolo, Vincenzo & Zanchettin, Piercarlo, 2010. "Leadership Cycles," Institutions and Markets Papers 60683, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feemim:60683
    DOI: 10.22004/ag.econ.60683
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    Cited by:

    1. Hélène Latzer, 2016. "Beyond the Arrow effect: a Schumpeterian theory of multi-quality firms ," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01387266, HAL.
    2. Hélène LATZER, 2013. "Beyond the Arrow effect: income distribution and multi-quality firms in a Schumpeterian framework," LIDAM Discussion Papers IRES 2013004, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).

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    More about this item

    Keywords

    Financial Economics;

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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