Good Rents versus Bad Rents: R&D Misallocation and Growth
Firm price-cost markups may reflect (a) bigger step sizes from quality innovations that confer significant knowledge spillovers onto other firms, and/or (b) higher process efficiency than competing firms. We write down an endogenous growth model in which, compared with the laissez-faire equilibrium, the social planner would generally like to reallocate research resources towards high markup firms in case (a) so as to capitalize on knowledge spillovers but not in case (b). We then exploit unit price variation across firms in French manufacturing to assess the relative strength of these two forces. Viewed through the lens of our model, the French data are consistent with significant variation in innovation step sizes, and hence gains from mitigating R&D misallocation. The policy implication is that, to reach the social optimum, French research subsidies should favor only those high markup firms with “good” rents.
Date: 28 February 2023, 13:15 (Tuesday, 7th week, Hilary 2023)
Venue: Manor Road Building, Manor Road OX1 3UQ
Venue Details: Seminar Room A or https://zoom.us/j/99960790792?pwd=L01NVnBQcGlqMVdQMHBiWDN3YmFMZz09
Speaker: Timo Boppart (Institute for International Economic Studies)
Organising department: Department of Economics
Part of: Macroeconomics Seminar
Booking required?: Not required
Audience: Public
Editor: Emma Heritage