Innovation and imitation

TL;DR

This paper models growth driven by innovation and imitation among firms, analyzing how these processes influence productivity distributions, firm dynamics, and economic growth through various theoretical models.

Contribution

It introduces models combining innovation and imitation to explain balanced growth paths and productivity distributions with novel insights into firm dynamics.

Findings

Balanced growth paths with truncated power-law productivity distributions.

Imitation and innovation cause fluctuations in productivity frontiers.

Firm numbers and productivity support can fluctuate due to stochastic imitation.

Abstract

We study several models of growth driven by innovation and imitation by a continuum of firms, focusing on the interaction between the two. We first investigate a model on a technology ladder where innovation and imitation combine to generate a balanced growth path (BGP) with compact support, and with productivity distributions for firms that are truncated power-laws. We start with a simple model where firms can adopt technologies of other firms with higher productivities according to exogenous probabilities. We then study the case where the adoption probabilities depend on the probability distribution of productivities at each time. We finally consider models with a finite number of firms, which by construction have firm productivity distributions with bounded support. Stochastic imitation and innovation can make the distance of the productivity frontier to the lowest productivity level fluctuate, and this distance can occasionally become large. Alternatively, if we fix the length of the support of the productivity distribution because firms too far from the frontier cannot survive, the number of firms can fluctuate randomly.