Paper by Philip Ushchev and Kiminori Matsuyama has been accepted for publication in the “Journal of Economic Theory”
Paper “Destabilizing Effects of Market Size in the Dynamics of Innovation” by our leading research fellow Philip Ushchev (joint with Kiminori Matsuyama from Northwestern University), has been accepted for publication at “Journal of Economic Theory”. In this paper, the authors want to capture the idea that larger markets tend to be more volatile. The authors build on the Judd model of endogenous innovation cycles in which waves of innovation may arise because innovations today saturate the market in the future through the delayed impact. They introduce the procompetitive effect in the Judd model with HSA (homothetic with a single aggregator) class of demand systems, which contains CES as a limit case. The authors show that waves of innovations are more likely to occur in larger markets under some sufficient conditions. The HSA class of the demand systems in general, and its two parametric families, “generalized translog” and “constant pass-through”, in particular, are tractable and yet flexible enough to be useful for many other applications.
Congratulation to our colleagues!
The paper is available via link https://doi.org/10.1016/j.jet.2022.105415