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; Luca, Zamparelli. - In: DECISIONS IN ECONOMICS AND FINANCE. - ISSN 1593-8883. - 34:1(2011), pp. 67-84. [10.1007/s10203-010-0109-4]

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

GIORDANI, PAOLO;
2011

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.
2011
R&D driven growth models; ambiguity; ε- contamination
On Robust Asymmetric Equilibria in Asymmetric R&D-Driven Growth Economies / Giordani, Paolo; Luca, Zamparelli. - In: DECISIONS IN ECONOMICS AND FINANCE. - ISSN 1593-8883. - 34:1(2011), pp. 67-84. [10.1007/s10203-010-0109-4]
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11385/7144
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