Technical Report Innovation by Heterogeneous Leaders

Ohki, Kazuyoshi  ,  Iwaisako, Tatsuro

15-30-Rev.pp.1 - 36 , 2018-04 , Graduate School of Economics and Osaka School of International Public Policy (OSIPP) Osaka University
* Revised: [15-30, 2015]
We develop a Schumpeterian growth model in which both leaders and followers conduct R&D activities and in which leaders have different quality leads over their followers, determined by a random draw, and thus have different profit flows. We show that leaders with larger quality leads make smaller R&D investments; this result is consistent with the actual behaviors of some previous leader firms such as Sony and Eastman–Kodak. Moreover, we show that subsidizing followers’ R&D can promote leaders’ aggregate R&D, because promotion of followers’ R&D decreases (increases) the number of leaders with larger (smaller) quality leads and smaller (larger) R&D investments.

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