Journal of Evolutionary Economics

, Volume 21, Issue 2, pp 303–319

Ambiguity attitude, R&D investments and economic growth

Regular Article

DOI: 10.1007/s00191-010-0217-x

Cite this article as:
Cozzi, G. & Giordani, P.E. J Evol Econ (2011) 21: 303. doi:10.1007/s00191-010-0217-x

Abstract

The process aimed at discovering new ideas is an economic activity the returns from which are intrinsically uncertain. We extend the neo-Schumpeterian growth framework to investigate the role of strong uncertainty in the innovative process. In particular, we postulate that, when deciding upon R&D efforts, investors hold ‘ambiguous beliefs’ about the exact probability of arrival of the next vertical innovation, and that they face ambiguity via the α −MEU decision rule (Ghirardato et al., J Econ Theory 118:133–173, 2004). Along the balanced growth path, the higher the agent’s ambiguity aversion (α), the lower the R&D efforts and the economic performance. Consistent with cross-country empirical evidence, this causal mechanism suggests that, together with the profitability conditions of the economy, different ‘cultural’ attitudes towards ambiguity may help explain the different R&D efforts observed across countries.

Keywords

Schumpeterian growthR&D investmentsArrival rate of innovationAmbiguityCultural attitude towards ambiguity

JEL Classification

032041D81Z1

Copyright information

© Springer-Verlag 2011

Authors and Affiliations

  1. 1.University of DurhamDurhamUK
  2. 2.Department of Economics and BusinessLUISS “Guido Carli” UniversityRomeItaly