On Robust Asymmetric Equilibria in Asymmetric R&D-Driven Growth Economies

Giordani, Paolo E. and Zamparelli, Luca (2009) On Robust Asymmetric Equilibria in Asymmetric R&D-Driven Growth Economies. [Working Paper]. p. 24. MPRA Paper (17171). (In Press)

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In an R&D-driven growth model with asymmetric fundamentals the steady state equilibrium R&D investments are industry-specific and they are such that R&D returns are equalized across industries. Return equalization, however, makes investors indifferent as to where to target research and, hence, the problem of allocation of R&D investments across industries is indeterminate. Agents' indifference creates an ambiguous investment scenario. We assume that agents hold "ambiguous" beliefs on the per-industry profitability of their R&D investments. Investors' aversion towards ambiguity (in the sense of Gilboa-Schmeidler, 1989) eliminates the indeterminacy of the R&D investment problem. In particular, we prove that the asymmetric return-equalizing equilibrium is robust against a however small degree of investors' aversion to ambiguity.

Item Type:Report / Paper (Working Paper)
Research documents and activity classification:Working Papers > Non-Refereed Working Papers / of national relevance only
Divisions:Department of Business and Management
Additional Information:Forthcoming on Decisions in Economics and Finance, 2010. See the accepted version on author's webpage: http://docenti.luiss.it/giordani/files/2010/09/asymmetric-2010.pdf
Uncontrolled Keywords:R&D driven growth models, symmetry/asymmetry, ambiguity.
MIUR Scientific Area:Area 13 - Economics and Statistics > SECS-P/01 Political Economy
Deposited By:Maria Teresa Nistico
Deposited On:23 Nov 2010 13:00
Last Modified:25 Nov 2010 10:17

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