Growth in this model is driven by technological change that arises from intentional investment decisions made by profit-maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a nonrival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported. Instead, the equilibrium is one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth.

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Endogenous Technological Change

Growth in this model is driven by technological change that arises from intentional investment decisions made by profit maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a nonrival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported, and instead, the equilibriumis one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth.

https://papers.ssrn.com/sol3/Delivery.cfm/nber_w3210.pdf?abstractid=226703&mirid=1

A model of endogenous growth is developed in which vertical innovations, generated by a competitive research sector, constitute the underlying source of growth. Equilibrium is determined by a forward-looking difference equation, according to which the amount of research in any period depends upon the expected amount of research next period. One source of this intertemporal relationship is creative destruction. That is, the prospect of more future research discourages current research by threatening to destroy the rents created by current research. The paper analyzes the positive and normative properties of stationary equilibria, in which research employment is constant and GNP follows a random walk with drift, although under some circumstances cyclical equilibria also exist. Both the average growth rate and the variance of the growth rate are increasing functions of the size of innovations, the size of the skilled labor force, and the productivity of research as measured by a parameter indicating the effect of research on the Poisson arrival rate of innovations; and decreasing functions of the rate of time preference of the representative individual. Under laissez faire the economy's growth rate may be more or less than optimal because, in addition to the appropriability and intertemporal spillover effects of other endogenous growth models, which tend to make growth slower than optimal, the model also has effects that work in the opposite direction. In particular, the fact that private research firms do not internalize the destruction of rents generated by their innovations introduces a business-stealing effect similar to that found in the partial-equilibrium patent race literature. When we endogenize the size of innovations we find that business stealing also makes innovations too small.

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A Model of Growth Through Creative Destruction

Offering a unifying theoretical perspective not readily available in any other text, this innovative guide to econometrics uses simple geometrical arguments to develop students' intuitive understanding of basic and advanced topics, emphasizing throughout the practical applications of modern theory and nonlinear techniques of estimation. One theme of the text is the use of artificial regressions for estimation, reference, and specification testing of nonlinear models, including diagnostic tests for parameter constancy, serial correlation, heteroscedasticity, and other types of mis-specification. Explaining how estimates can be obtained and tests can be carried out, the authors go beyond a mere algebraic description to one that can be easily translated into the commands of a standard econometric software package. Covering an unprecedented range of problems with a consistent emphasis on those that arise in applied work, this accessible and coherent guide to the most vital topics in econometrics today is indispensable for advanced students of econometrics and students of statistics interested in regression and related topics. It will also suit practising econometricians who want to update their skills. Flexibly designed to accommodate a variety of course levels, it offers both complete coverage of the basic material and separate chapters on areas of specialized interest.

Estimation and Inference in Econometrics

Cause, conseguenze e strategie di mitigazione Proponiamo il primo di una serie di articoli in cui affronteremo l’attuale problema dei mutamenti climatici. Presentiamo il documento redatto, votato e pubblicato dall’Ipcc - Comitato intergovernativo sui cambiamenti climatici - che illustra la sintesi delle ricerche svolte su questo tema rilevante.

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Climate Change 2007: The Physical Science Basis.

We introduce an algorithm for solving dynamic economic models that merges stochastic simulation and projection approaches: we use simulation to approximate the ergodic measure of the solution, we construct a fixed grid covering the support of the constructed ergodic measure, and we use projection techniques to accurately solve the model on that grid. The grid construction is the key novel piece of our analysis: we select an -distinguishable subset of simulated points that covers the support of the ergodic measure roughly uniformly. The proposed algorithm is tractable in problems with high dimensionality (hundreds of state variables) on a desktop computer. As an illustration, we solve one- and multicountry neoclassical growth models and a large-scale new Keynesian model with a
zero lower bound on nominal interest rates.

/pdf/merging-simulation-and-projection-approaches-to-solve-high-q3m3lb7kkv.pdf

Merging Simulation and Projection Approaches to Solve High-Dimensional Problems

Static oligopoly theories disagree on whether mergers are prof- itable. The Cournot model says that many potential mergers would be unprofitable whereas the Bertrand model says that all mergers are profitable. We show that, for economically sensible parameter values, mergers are profitable for merging firms when firms choose both price and output, using inventories to absorb differences between output and sales. Furthermore, substantial cost advantages are necessary for a merger to benefit consumers. The merger predictions of our dynamic model are most similar to predictions of static Bertrand analyses of differentiated products even though our model often behaves like the Cournot model in the long run.

/pdf/mergers-and-dynamic-oligopoly-55aah6y2f1.pdf

Mergers and Dynamic Oligopoly

Proposition 5 in our paper dealt with the incentive equilibrium in differentiated product oligopoly The proposition states that under linear demand and cost functions, the incentive equilibrium is such that managers are overcompensated at the margin for profits Given the correction of equation (24) above, we need to add that this proposition holds only when A (ba)c Note, however, that this condition has little impact on our analysis, since in our setting it is a necessary condition for having a duopolistic market in which both firms produce positive quantities while having nonnegative profits

Equilibrium Incentives in Oligopoly: Corrigendum

Discrete-time stochastic games with a finite number of states have been widely applied to study the strategic interactions among forward-looking players in dynamic environments. However, these games suffer from a curse of dimensionality since the cost of computing players' expectations over all possible future states increases exponentially in the number of state variables. We explore the alternative of continuous-time stochastic games with a finite number of states, and show that continuous time has substantial computational and conceptual advantages. Most important, continuous time avoids the curse of dimensionality, thereby speeding up the computations by orders of magnitude in games with more than a few state variables. Overall, the continuous-time approach opens the way to analyze more complex and realistic stochastic games than currently feasible.

/pdf/avoiding-the-curse-of-dimensionality-in-dynamic-stochastic-3w7p32fnup.pdf

Avoiding the Curse of Dimensionality in Dynamic Stochastic Games

Many important questions in macroeconomics concern the impact of taxation and spending policies on private resource allocation. One approach, typified by Robert Hall (1971) and William Brock and Stephen Turnovsky (1981), is to use dynamic general equilibrium models to address basic issues in fiscal and tax policy. The objective is to explicitly examine macroeconomic issues without embracing the market imperfections (fixed prices, missing markets, money illusion, etc.) found in conventional macroeconomic analysis. There is currently great interest in dynamic fiscal policy problems. This decade has already seen two major adjustments in tax policy, and many attempts to substantially alter spending patterns. The result of this tumult has been unprecedented peacetime deficits and much uncertainty about what measures will ultimately be used to bring the budget into balance. In this paper, I discuss the impact of alternative fiscal policies in a dynamic general equilibrium model. I examine the shortrun effects of fiscal policy changes, the efficiency cost of alternative dynamic tax policies, the effects of uncertain policy formation, and the redistributive effects of factor taxation.

Kenneth L. Judd

Papers

Merging Simulation and Projection Approaches to Solve High-Dimensional Problems

Mergers and Dynamic Oligopoly

Equilibrium Incentives in Oligopoly: Corrigendum

Avoiding the Curse of Dimensionality in Dynamic Stochastic Games

A Dynamic Theory of Factor Taxation