Horizontal Innovations with Endogenous Quality Choice
Article first published online: 12 MAY 2010
© 2010 The London School of Economics and Political Science
Volume 78, Issue 312, pages 697–722, October 2011
How to Cite
SORGER, G. (2011), Horizontal Innovations with Endogenous Quality Choice. Economica, 78: 697–722. doi: 10.1111/j.1468-0335.2010.00852.x
- Issue published online: 19 SEP 2011
- Article first published online: 12 MAY 2010
- Final version received 30 November 2009.
We consider a growth model with horizontal innovations but assume that researchers can determine the quality of their product designs. The effort necessary to create a new product design increases with its quality so that there is a trade-off between the quantity and quality of innovations. We study the implications of this trade-off for the relative contributions of quality improvement and variety expansion to productivity growth. Due to the quality/quantity trade-off of R&D, the resolution of the scale effects problem does not result in the policy invariance of the growth rate.