R&D Model Flashcards
How is technology defined in the R&D model?
Things such as “formulas” or “knowledge” that allow firms to mix capital and work to create a product that is attractive to consumers
Which are some characteristics of technology in the R&D model?
It is a non-rival good, but it does not mean that it is non excludable
Who will produce technological goods in the R&D model?
Firms with some degree of market power, because it implies high costs
Which are the two approaches on technological progress in the R&D model?
- Technological progress comes as an increase in the number of products or capital goods available as inputs
- Technological progress comes as an increase in the quality of a limited number of products
Which is an assumption about capital goods in the R&D model?
It does not exhibit decreasing marginal returns, because of R&D
Which are the three types of agents in Romer’s R&D model?
- Producers of final goods
- Firms that invent capital goods
- Consumers
What does the production of final goods depend on in the R&D model?
- Parameter A
- The quantity of work
- The used amount of each intermediate good
How do the economic growth rates behave in the R&D model?
They grow forever, since N exhibits constant returns
What do the final good producers have to decide?
Choosing the quantity of each of the intermediate goods and work, by maximizing the present value of future profits
What is a relevant assumption about government in the R&D model?
There is a legal system that guarantees the perpetuity of property rights of the invention and that these allow the inventor to have the monopoly in said product
Which are the two decisions that the inventor must face in the R&D model?
- Whether to participate or not in the R&D game (Step 2)
- Once the product is invented, what its selling price will be (Step 1)
How does the inventor establish the intermediate good’s price?
By maximizing the discounted present value of all future profits
What must happen in the model in order for the inventor to go ahead and invest in R&D?
The inventor will opt for investing in R&D if the expected gains exceed the costs
Which are the costs of investing in R&D?
Phi: by paying phi, the inventor acquires the right to sell the new product to perpetuity and obtain the expected benefits
How does the growth rate of consumption behave in the R&D model?
- Constant
- Only depends on the constants in the model
- Has an inverse relationship with the cost of R&D
