Ambiguity attitude, R&D investments and economic growth
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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.
KeywordsSchumpeterian growth R&D investments Arrival rate of innovation Ambiguity Cultural attitude towards ambiguity
JEL Classification032 041 D81 Z1
We are grateful to an anonymous referee for his/her precious suggestions. We would also like to thank seminar participants at the European University Institute (EUI), at the University of Heidelberg and at the University of Rome “La Sapienza”. Paolo E. Giordani thankfully acknowledges financial support from the Robert Schuman Centre for Advanced Studies at the EUI.
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