Creator: Luttmer, Erzo G. J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 699 Abstract:
This paper adds imitation by incumbent firms, and not just by new entrants, to the model of selection and growth developed in Luttmer . Noisy firm-level innovation and imitation give rise to a long-run growth rate that exceeds the average rate at which individual firms innovate. It can be shown, in simple examples, that the economy converges to a long-run balanced growth path from compactly supported initial productivity distributions. The right tail of the stationary distribution of de-trended productivity is approximately Pareto. The tail index of this distribution depends on the rate at which incumbents are able to imitate only indirectly, through general equilibrium effects of this parameter on the equilibrium growth rate.
Keyword: Technology diffusion, Size distribution of firms, and Endogenous growth Subject (JEL): O33 - Technological Change: Choices and Consequences; Diffusion Processes and L11 - Production, Pricing, and Market Structure; Size Distribution of Firms