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Technology lock-in with horizontal and vertical innovations through limited R&D spending
Series title
WWZ Working Papers
Volume
2017
Number
04
Pages
22
Publisher / Institution
WWZ, University of Basel
Keywords
Multiple steady-states, lock-in, innovations, R&D constraint, optimal control
Abstract
In this paper we analyze an inter-temporal optimization problem of a representative firm that invests in horizontal and vertical innovations and that faces a constraint with respect to total R&D spending. We find that there can exist two different steady-states of the economy when the amount of research spending falls short of an endogenously determined threshold: one with higher productivities and less new technologies being developed, and the other with more technologies being created and lower productivities. But, for a higher amount of R&D spending the steady-state becomes unique and the firm produces the whole spectrum of available technologies. Thus, a lock-in effect may arise that, however, van be overcome by raising R&D spending sufficiently.
