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SPECULATIVE PROFITS, INNOVATION, AND GROWTH
Author(s) -
Denicolò Vincenzo,
Zanchettin Piercarlo
Publication year - 2017
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12375
Subject(s) - economics , economic rent , argument (complex analysis) , monopoly , microeconomics , investment (military) , endogenous growth theory , neoclassical economics , market economy , law , biochemistry , chemistry , politics , political science , human capital
When technological change affects the prices of tradeable assets, innovators can obtain speculative profits by exploiting their inside information as to the occurrence of innovations. We propose a tractable model of endogenous growth that formalizes this argument, originally due to Hirshleifer (1971). We then use the model to assess two claims advanced by Hirshleifer, namely, that speculative profits can generate excessive investment in R&D when they add to monopoly rents guaranteed by patent protection, or else even in a perfectly competitive economy. The analysis confirms the first claim, but casts doubts on the second one. ( JEL O30, O40)