Ambiguity attitude, R&D investments and economic growth

Cozzi, G.; Giordani, P.E.

Abstract

The process aimed at discovering new ideas is an economic activity the returns from which are intrinsically uncertain. We extend the neo-Schumpeterian growth framework to investigate the role of strong uncertainty in the innovative process. In particular, we postulate that, when deciding upon R&D efforts, investors hold ‘ambiguous beliefs’ about the exact probability of arrival of the next vertical innovation, and that they face ambiguity via the α −MEU decision rule (Ghirardato et al., J Econ Theory 118:133–173, 2004). Along the balanced growth path, the higher the agent’s ambiguity aversion (α), the lower the R&D efforts and the economic performance. Consistent with cross-country empirical evidence, this causal mechanism suggests that, together with the profitability conditions of the economy, different ‘cultural’ attitudes towards ambiguity may help explain the different R&D efforts observed across countries.

Citation

Cozzi, G., & Giordani, P. (2011). Ambiguity attitude, R&D investments and economic growth. Journal of Evolutionary Economics, 21(2), 303-319. https://doi.org/10.1007/s00191-010-0217-x

• Journal Article Type: Article
• Publication Date: May 1, 2011
• Deposit Date: May 6, 2011
• Journal: Journal of Evolutionary Economics
• Print ISSN: 0936-9937
• Electronic ISSN: 1432-1386
• Publisher: Springer
• Peer Reviewed: Peer Reviewed
• Volume: 21
• Issue: 2
• Pages: 303-319
• DOI: https://doi.org/10.1007/s00191-010-0217-x
• Keywords: Schumpeterian growth, R&D investments, Arrival rate of innovation, Ambiguity, Cultural attitude towards ambiguity.
• Public URL: https://durham-repository.worktribe.com/output/1541207