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Creator: Kehoe, Timothy Jerome, 1953-, Levine, David K., and Woodford, Michael, 1955- Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 404 Abstract:
This paper uses a simple general equilibrium model in which agents use money holdings to self insure to address the classic question: What is the optimal rate of change of the money supply? The standard answer to this question, provided by Friedman, Bewley, Townsend, and others, is that this rate is negative. Because any revenues from seigniorage in our model are redistributed in lump-sum form to agents and this redistribution improves insurance possibilities, we find that the optimal rate is sometimes positive. We also discuss the measurement of welfare gains or losses from inflation and their quantitative significance.
Creator: Boldrin, Michele and Levine, David K. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 357 Abstract:
Innovation and the adoption of new ideas are fundamental to economic progress. Here we examine the underlying economics of the market for ideas. From a positive perspective, we examine how such markets function with and without government intervention. From a normative perspective, we examine the pitfalls of existing institutions, and how they might be improved. We highlight recent research by ourselves and others challenging the notion that government awards of monopoly through patents and copyright are “the way” to provide appropriate incentives for innovation.
Creator: Boldrin, Michele and Levine, David K. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 347 Abstract:
Innovations and their adoption are the keys to growth and development. Innovations are less socially useful, but more profitable for the innovator, when they are adopted slowly and the innovator remains a monopolist. For this reason, rent-seeking, both public and private, plays an important role in determining the social usefulness of innovations. This paper examines the political economy of intellectual property, analyzing the trade-off between private and public rent-seeking. While it is true in principle that public rent-seeking may be a substitute for private rent-seeking, it is not true that this results always either in less private rent-seeking or in a welfare improvement. When the public sector itself is selfish and behaves rationally, we may experience the worst of public and private rent-seeking together.
Palavra-chave: Rent seeking, Trade secrecy, Intellectual property, Patent, and Innovation Sujeito: D42 - Market Structure, Pricing, and Design: Monopoly and D62 - Externalities
Creator: Boldrin, Michele and Levine, David K. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 303 Abstract:
We construct a competitive model of innovation and growth under constant returns to scale. Previous models of growth under constant returns cannot model technological innovation. Current models of endogenous innovation rely on the interplay between increasing returns and monopolistic markets. In fact, established wisdom claims monopoly power to be instrumental for innovation and sees the nonrivalrous nature of ideas as a natural conduit to increasing returns. The results here challenge the positive description of previous models and the normative conclusion that monopoly through copyright and patent is socially beneficial.
Palavra-chave: Endogenous technological change, Monopoly power, and Innovation Sujeito: O31 - Innovation and Invention: Processes and Incentives, O33 - Technological Change: Choices and Consequences; Diffusion Processes, D62 - Externalities, L16 - Industrial Organization and Macroeconomics: Industrial Structure and Structural Change; Industrial Price Indices, O11 - Macroeconomic Analyses of Economic Development, and O34 - Intellectual Property and Intellectual Capital
Creator: Kehoe, Timothy Jerome, 1953-, Levine, David K., and Romer, Paul Michael, 1955- Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 436 Abstract:
We characterize equilibria of general equilibrium models with externalities and taxes as solutions to optimization problems. This characterization is similar to Negishi’s characterization of equilibria of economies without externalities or taxes as solutions to social planning problems. It is often useful for computing equilibria or deriving their properties. Frequently, however, finding the optimization problem that a particular equilibrium solves is difficult. This is especially true in economies with multiple equilibria. In a dynamic economy with externalities or taxes there may be a robust continuum of equilibria even if there is a representative consumer. This indeterminacy of equilibria is closely related to that in overlapping generations economies.
Creator: Holmes, Thomas J., Levine, David K., and Schmitz, James Andrew Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 402 Abstract:
Arrow (1962) argued that since a monopoly restricts output relative to a competitive industry, it would be less willing to pay a fixed cost to adopt a new technology. Arrow’s idea has been challenged and critiques have shown that under different assumptions, increases in competition lead to less innovation. We develop a new theory of why a monopolistic industry innovates less than a competitive industry. The key is that firms often face major problems in integrating new technologies. In some cases, upon adoption of technology, firms must temporarily reduce output. We call such problems switchover disruptions. If firms face switchover disruptions, then a cost of adoption is the forgone rents on the sales of lost or delayed production, and these opportunity costs are larger the higher the price on those lost units. In particular, with greater monopoly power, the greater the forgone rents. This idea has significant consequences since if we add switchover disruptions to standard models, then the critiques of Arrow lose their force: competition again leads to greater adoption. In addition, we show that our model helps explain the accumulating evidence that competition leads to greater adoption (whereas the standard models cannot).
Sujeito: D42 - Market Structure, Pricing, and Design: Monopoly, O33 - Technological Change: Choices and Consequences; Diffusion Processes, D21 - Firm Behavior: Theory, O32 - Management of Technological Innovation and R&D, L12 - Monopoly; Monopolization Strategies, and L14 - Transactional Relationships; Contracts and Reputation; Networks
Creator: Boldrin, Michele and Levine, David K. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 360 Abstract:
Intellectual property protection involves a trade-off between the undesirability of monopoly and the desirable encouragement of creation and innovation. As the scale of the market increases, due either to economic and population growth or to the expansion of trade through treaties such as the World Trade Organization, this trade-off changes. We show that, generally speaking, the socially optimal amount of protection decreases as the scale of the market increases. We also provide simple empirical estimates of how much it should decrease.
Palavra-chave: Innovation, Monopoly, Harmonization, Intellectual Property, and International Trade
Creator: Boldrin, Michele and Levine, David K. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 339 Abstract:
In the modern theory of growth, monopoly plays a crucial role both as a cause and an effect of innovation. Innovative firms, it is argued, would have insufficient incentive to innovate should the prospect of monopoly power not be present. This theme of monopoly runs throughout the theory of growth, international trade, and industrial organization. We argue that monopoly is neither needed for, nor a necessary consequence of, innovation. In particular, intellectual property is not necessary for, and may hurt more than help, innovation and growth. We argue that, as a practical matter, it is more likely to hurt.
Palavra-chave: Growth, Trade, Capital Accumulation, Intellectual Property, and Innovation Sujeito: L43 - Legal Monopolies and Regulation or Deregulation, F11 - Neoclassical Models of Trade, O47 - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence, O34 - Intellectual Property and Intellectual Capital, L11 - Production, Pricing, and Market Structure; Size Distribution of Firms, and O31 - Innovation and Invention: Processes and Incentives
Creator: Boldrin, Michele and Levine, David K. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 279 Abstract:
Market booms are often followed by dramatic falls. To explain this requires an asymmetry in the underlying shocks. A straightforward model of technological progress generates asymmetries that are also the source of growth cycles. Assuming a representative consumer, we show that the stock market generally rises, punctuated by occasional dramatic falls. With high risk aversion, bad news causes dramatic increases in prices. Bad news does not correspond to a contraction of existing production possibilities, but to a slowdown in their rate of expansion. This economy provides a model of endogenous growth cycles in which recoveries and recessions are dictated by the adoption of innovations.
Palavra-chave: Stock Market Value, Growth Cycles, and Technological Revolutions Sujeito: G12 - Asset Pricing; Trading Volume; Bond Interest Rates, O41 - One, Two, and Multisector Growth Models, O30 - Innovation; Research and Development; Technological Change; Intellectual Property Rights: General, and O40 - Economic Growth and Aggregate Productivity: General
Creator: Boldrin, Michele and Levine, David K. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 301 Abstract:
We study a simple model of factor saving technological innovation in a concave framework. Capital can be used either to reproduce itself or, at additional cost, to produce a higher quality of capital that requires less labor input. If higher quality capital can be produced quickly, we get a model of exogenous balanced growth as a special case. If, however, higher quality capital can be produced slowly, we get a model of endogenous growth in which the growth rate of the economy and the rate of adoption of new technologies are determined by preferences, technology, and initial conditions. Moreover, in the latter case, the process of growth is necessarily uneven, exhibiting a natural cycle with alternating periods of high and low growth. Growth paths and technological innovations also exhibit dependence upon initial conditions. The model provides a step toward a theory of endogenous innovation under conditions of perfect competition.
Palavra-chave: Choices and consequences, Technological change, Aggregate productivity, Processes and incentives, Innovation and invention, One, two and multisector growth models, and Measurement of economic growth Sujeito: C61 - Optimization Techniques; Programming Models; Dynamic Analysis, D41 - Market Structure, Pricing, and Design: Perfect Competition, O30 - Innovation; Research and Development; Technological Change; Intellectual Property Rights: General, O40 - Economic Growth and Aggregate Productivity: General, and D24 - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity