Ola Olsson: Department of Economics, School of Economics and Commercial Law, Göteborg University, Postal: Box 640, SE 405 30 GÖTEBORG
Abstract: Long-run technological progress is cyclical because drastic innovations that introduce new technological opportunity are only profitable at times when repeated incremental innovation has nearly exhausted existing technological opportunity and driven entrepreneurial profit and income growth towards zero. The article presents a ’technological opportunity model’ where endogenous drastic and incremental innovations interact with exogenous discoveries in an idealized metric technology space. New ideas are created by convex combinations of existing ideas. Diminishing technological opportunity results in lower profits and growth, which then makes costly and risky drastic innovations profitable again. This relationship between intense drastic innovation intensity and poor levels of economic growth receives some empirical support.
33 pages, March 21, 2001
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