Technical Report Examination and Approval of New Products in an Endogenous Growth Model

Morimoto, Takaaki  ,  Akimoto, Kiyoka

17-33pp.1 - 26 , 2017-11 , Graduate School of Economics and Osaka School of International Public Policy (OSIPP) Osaka University
This paper introduces examination of newly developed varieties into a standard “variety expansion” and “lab-equipment” type R&D-based growth model. Producing newly developed varieties requires approval, and their examination incurs both cost and time. Reducing the examination duration increases the unit cost of examination. This paper investigates the effects of reducing the examination duration on examination backlogs (the number of varieties under examination), economic growth, and welfare. Examination backlogs and examination duration have an inverted-U shaped relationship, because reducing the examination duration on the one hand decreases the examination backlogs by accelerating the examination process, but on the other hand increases backlogs by promoting R&D and increasing the number of applications. Reducing the examination duration promotes economic growth; while it tightens the resource constraint and thus seems to hurt initial consumption, but the numerical analysis shows that this is not always the case. Nevertheless, a drastic reduction in the examination duration is detrimental to initial consumption, so there is an optimal examination duration.

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