Arbeitspapier
Innovation, industry equilibrium, and discount rates
We develop a model to examine how discount rates affect the nature and composition of innovation within an industry. Challenging conventional wisdom, we show that higher discount rates do not discourage firm innovation when accounting for the industry equilibrium. Higher discount rates deter fresh entry-effectively acting as entry barriers-but encourage innovation through the intensive margin, which can lead to a higher industry innovation rate on net. Simultaneously, high discount rates foster explorative over exploitative innovation. The model rationalizes observed patterns of innovation cyclicality, and predicts that lower entry in downturns hedges innovating incumbents against higher discount rates.
- ISBN
-
978-92-899-6120-2
- Sprache
-
Englisch
- Erschienen in
-
Series: ECB Working Paper ; No. 2835
- Klassifikation
-
Wirtschaft
Capital Budgeting; Fixed Investment and Inventory Studies; Capacity
Asset Pricing; Trading Volume; Bond Interest Rates
Innovation and Invention: Processes and Incentives
- Thema
-
Vertical and horizontal innovation
creative destruction
time-varying discount rates
risk premia
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Bustamante, Maria Cecilia
Zucchi, Francesca
- Ereignis
-
Veröffentlichung
- (wer)
-
European Central Bank (ECB)
- (wo)
-
Frankfurt a. M.
- (wann)
-
2023
- DOI
-
doi:10.2866/156488
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:45 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Bustamante, Maria Cecilia
- Zucchi, Francesca
- European Central Bank (ECB)
Entstanden
- 2023
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