An Explanation of the Inverted-U Relationship between Profitability and Innovation.

Krčál, Ondřej.

An Explanation of the Inverted-U Relationship between Profitability and Innovation. - 1 online resource (168 pages)

Intro -- Acknowledgements -- Contents -- Introduction -- Chapter 1 Survey of literature -- 1.1 A review of Aghion et al.'s model -- 1.2 The empirical tests of Aghion et al.'s model -- 1.2.1 Testing all three predictions -- 1.2.2 The remaining empirical tests -- 1.3 Summary and discussion -- 1.3.1 Summary of the empirical literature -- 1.3.2 Discussion of Aghion et al.'s model -- Chapter 2 The basic model -- 2.1 Structure of the model -- 2.2 Predictions of the model -- 2.2.1 Solving the model -- 2.2.2 R&D expenditures -- 2.2.3 The technology gap -- 2.2.4 Empirical relevance of the results -- 2.3 Summary -- Chapter 3 The prospect-theory model -- 3.1 Structure of the model -- 3.2 The PT model with constant sensitivity -- 3.2.1 Solving the model -- 3.2.2 R&D expenditures -- 3.2.3 The technology gap -- 3.2.4 Empirical relevance of the results -- 3.3 The PT model with diminishing sensitivity -- 3.3.1 R&D expenditures -- 3.3.2 The technology gap -- 3.3.3 Empirical relevance of the results -- 3.4 Summary -- Chapter 4 Sensitivity analysis -- 4.1 The basic model -- 4.1.1 R&D expenditures -- 4.1.2 The technology gap -- 4.1.3 Summary -- 4.2 The prospect-theory model -- 4.2.1 Zero profit difference -- 4.2.2 The effect of individual parameters -- 4.2.3 Positive profit difference -- 4.2.4 Summary -- Conclusion -- Bibliography -- List of Tables -- List of Figures -- Appendix A Endogenous profit difference -- A.1 Structure of the model -- A.2 Predictions of the model -- Appendix B Netlogo codes -- B.1 The basic model -- B.2 The PT model with constant sensitivity -- B.3 The PT model with diminishing sensitivity -- B.4 Sensitivity analysis -- B.5 The PT model with endogenous profit difference -- Abstract.

The author introduces two models of innovation that are able to explain the inverted-U relationship between profitability and innovation, along with the findings of Aghion et al. (2005) and Hashmi (2005) related to the relationship between profitability and the dispersion of productivity in the industry. The basic model provides a simple and general explanation ofthe empirical findings. The prospect-theory model provides a more specific explanation of the empirical findings, which includes a behavioral model of managerial decision-making. He shows that both models generate realistic predictions for a wider range of parameter combinations around the specific parameter values.

9788021074989


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HD41.K733 2014

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