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Horizontal Innovations with Endogenous Quality Choice
Author(s) -
SORGER GERHARD
Publication year - 2011
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/j.1468-0335.2010.00852.x
Subject(s) - quality (philosophy) , product (mathematics) , endogenous growth theory , variety (cybernetics) , productivity , economics , scale (ratio) , industrial organization , microeconomics , macroeconomics , mathematics , statistics , philosophy , physics , geometry , epistemology , quantum mechanics , economic growth , human capital
We consider a growth model with horizontal innovations but assume that researchers can determine the quality of their product designs. The effort necessary to create a new product design increases with its quality so that there is a trade‐off between the quantity and quality of innovations. We study the implications of this trade‐off for the relative contributions of quality improvement and variety expansion to productivity growth. Due to the quality/quantity trade‐off of R&D, the resolution of the scale effects problem does not result in the policy invariance of the growth rate.