TY  - JOUR
AU  - Barlevy,Gadi
TI  - On the Timing of Innovation in Stochastic Schumpeterian Growth Models
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10741
PY  - 2004
Y2  - September 2004
UR  - http://www.nber.org/papers/w10741
L1  - http://www.nber.org/papers/w10741.pdf
N1  - Author contact info:
Gadi Barlevy
Economic Research Department
Federal Reserve Bank of Chicago
230 South LaSalle
Chicago, IL  60604
Tel: 312/322-6379
Fax: 312/322-2357
E-Mail: gbarlevy@frbchi.org
AB  - Recent work has revived the Schumpeterian hypothesis that recessions facilitate innovation and growth. But a major source of productivity growth, research and development, is actually procyclical. This paper argues that while it is optimal to concentrate growth-enhancing activities in downturns, dynamic spillovers inherent to the R&D process lead private agents to concentrate too much of their R&D activity in booms, precisely when its social cost is highest. Thus, while previous literature has argued recessions promote growth and intertemporal substitution is a desirable consequence of fluctuations, in the case of R&D recessions discourage growth and intertemporal substitution proves to be a social liability.
ER  -