The Relationship between Profitability, Innovation and Technology Gap: A Basic Model
This paper introduces a model of innovation that explains some of the stylized facts presented in recent empirical literature. In the model, firms choose R&D expenditures that maximize their expected profits under the assumption that R&D expenditures of firms might be constrained by the size...
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Online Access: | https://doi.org/10.2478/revecp-2014-0011 |
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doaj-28853fee13564eeca8323051c48909a72021-09-05T14:01:22ZengSciendoReview of Economic Perspectives 1804-16632014-09-0114321523110.2478/revecp-2014-0011revecp-2014-0011The Relationship between Profitability, Innovation and Technology Gap: A Basic ModelKrčál Ondřej0Department of Economics, Masaryk University. Address: Lipová 41a, 602 00 BrnoThis paper introduces a model of innovation that explains some of the stylized facts presented in recent empirical literature. In the model, firms choose R&D expenditures that maximize their expected profits under the assumption that R&D expenditures of firms might be constrained by the size of their profits. Optimal decisions of firms generate relationships between profitability and innovation of individual firms that may create the observed patterns at the industry level. In particular, the model is able to explain an inverted-U relationship between profitability and innovation in the industry together with decreasing or flat and concave relationships between profitability and the dispersion of productivity in the industry. Additionally, the paper investigates the parameter space for which the model generates the observed relationships.https://doi.org/10.2478/revecp-2014-0011innovationtechnology gapprofitsinverted-u relationship |
collection |
DOAJ |
language |
English |
format |
Article |
sources |
DOAJ |
author |
Krčál Ondřej |
spellingShingle |
Krčál Ondřej The Relationship between Profitability, Innovation and Technology Gap: A Basic Model Review of Economic Perspectives innovation technology gap profits inverted-u relationship |
author_facet |
Krčál Ondřej |
author_sort |
Krčál Ondřej |
title |
The Relationship between Profitability, Innovation and Technology Gap: A Basic Model |
title_short |
The Relationship between Profitability, Innovation and Technology Gap: A Basic Model |
title_full |
The Relationship between Profitability, Innovation and Technology Gap: A Basic Model |
title_fullStr |
The Relationship between Profitability, Innovation and Technology Gap: A Basic Model |
title_full_unstemmed |
The Relationship between Profitability, Innovation and Technology Gap: A Basic Model |
title_sort |
relationship between profitability, innovation and technology gap: a basic model |
publisher |
Sciendo |
series |
Review of Economic Perspectives |
issn |
1804-1663 |
publishDate |
2014-09-01 |
description |
This paper introduces a model of innovation that explains some of the stylized facts presented in recent empirical literature. In the model, firms choose R&D expenditures that maximize their expected profits under the assumption that R&D expenditures of firms might be constrained by the size of their profits. Optimal decisions of firms generate relationships between profitability and innovation of individual firms that may create the observed patterns at the industry level. In particular, the model is able to explain an inverted-U relationship between profitability and innovation in the industry together with decreasing or flat and concave relationships between profitability and the dispersion of productivity in the industry. Additionally, the paper investigates the parameter space for which the model generates the observed relationships. |
topic |
innovation technology gap profits inverted-u relationship |
url |
https://doi.org/10.2478/revecp-2014-0011 |
work_keys_str_mv |
AT krcalondrej therelationshipbetweenprofitabilityinnovationandtechnologygapabasicmodel AT krcalondrej relationshipbetweenprofitabilityinnovationandtechnologygapabasicmodel |
_version_ |
1717810299145289728 |