In R&D-driven growth models 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 eliminates the indeterminacy of the investment problem. In particular, the asymmetric return-equalizing equilibrium is robust against a however small degree of investors' ambiguity aversion.

On Robust Asymmetric Equilibria in Asymmetric R&D-Driven Growth Economies / Giordani, Paolo; Zamparelli, Luca. - No. 17171:(2009).

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

GIORDANI, PAOLO;ZAMPARELLI, LUCA
2009

Abstract

In R&D-driven growth models 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 eliminates the indeterminacy of the investment problem. In particular, the asymmetric return-equalizing equilibrium is robust against a however small degree of investors' ambiguity aversion.
R&D driven growth models; symmetry/asymmetry; ambiguity
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11385/39258
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