DP3274 Perfectly Competitive Innovation

Author(s): Michele Boldrin, David Levine
Publication Date: March 2002
Keyword(s): endogenous technological change, innovation, monopoly power
JEL(s): D62, L16, O11, O31, O33, O34
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3274

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 non-rivalrous 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.