Technology diffusion and growth

Suppose firms are subject to decreasing returns and permanent idiosyncratic productivity shocks. Suppose also firms can only stay in business by continuously paying a fixed cost. New firms can enter. Firms with a history of relatively good productivity shocks tend to survive and others are forced to...

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Bibliographic Details
Published inJournal of economic theory Vol. 147; no. 2; pp. 602 - 622
Main Author Luttmer, Erzo G.J.
Format Journal Article
LanguageEnglish
Published New York Elsevier Inc 01.03.2012
Elsevier
Elsevier Science Publishing Company, Inc
Subjects
Approximation
Balancing
Business
Cost engineering
Cultural imitation
Diffusion
Economic growth
Economic models
Economic theory
Economics
Enterprises
Imitation
Innovation diffusion
Innovationsdiffusion
Markteintritt
Productivity
Produktivität
Selection
Size distribution
Statistical methods
Studies
Technological change
Technology transfer
Theorie
Unternehmenswachstum
Zipf's Law
Zipf, George Kingsley
Productivity
O3
Diffusion
L1
Selection
Imitation
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Summary:Suppose firms are subject to decreasing returns and permanent idiosyncratic productivity shocks. Suppose also firms can only stay in business by continuously paying a fixed cost. New firms can enter. Firms with a history of relatively good productivity shocks tend to survive and others are forced to exit. This paper identifies assumptions about entry that guarantee a stationary firm size distribution and lead to balanced growth. The range of technology diffusion mechanisms that can be considered is greatly expanded relative to Luttmer (2007) [21]. If entrants can make only small improvements over the technologies used by the least productive incumbents, then the firm size distribution approximates Zipfʼs law and entry and exit rates are high, as in the data.
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ISSN:0022-0531
1095-7235
DOI:10.1016/j.jet.2011.02.003