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On Robust Asymmetric Equilibria in Asymmetric R&D-Driven Growth Economies

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  • Paolo E. Giordani

    (Department of Economics and Business, LUISS Guido Carli University)

  • Luca Zamparelli

    (Department of Economic Theory, Sapienza University of Rome)

Abstract

In R&D-driven growth models with asymmetric fundamentals the steady-state equilibrium R&D investments are industry-specifc and they are such that R&D returns are equalized across industries. Return equalization, however, makes investors indifferent as to where to target research and, hence, the problem of allocation of R&D investments across industries is indeterminate. Agents' indifference creates an ambiguous investment scenario. We assume that agents hold "ambiguous" beliefs on the per-industry profitability of their R&D investments. Investors' aversion towards ambiguity eliminates the indeterminacy of the investment problem. In particular, the asymmetric return-equalizing equilibrium is robust against a however small degree of investors' ambiguity aversion.

Suggested Citation

  • Paolo E. Giordani & Luca Zamparelli, 2009. "On Robust Asymmetric Equilibria in Asymmetric R&D-Driven Growth Economies," Working Papers CELEG 0903, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    • Handle: RePEc:lui:celegw:0903
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    1. Roxana Mihet, 2013. "Effects of culture on firm risk-taking: a cross-country and cross-industry analysis," Journal of Cultural Economics, Springer;The Association for Cultural Economics International, vol. 37(1), pages 109-151, February.

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    More about this item

    Keywords

    R&D driven growth models; ambiguity; epsilon-contamination.;
    All these keywords.

    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
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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