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Coordination frictions and economic growth

Published online by Cambridge University Press:  22 July 2022

Miroslav Gabrovski
Miroslav Gabrovski*
Affiliation:
University of Hawaii at Manoa
*
Email: mgabr@hawaii.edu
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Abstract

In practice, firms face a number of scarce innovation projects. They choose one towards which to direct their effort, but do not coordinate these choices. This gives rise to coordination frictions. This paper develops an expanding-variety endogenous growth model to study the implications of these frictions for growth and welfare. We find that the coordination failure generates a number of foregone innovations and reduces the economy-wide research intensity. Both effects decrease the growth rate. This creates a general equilibrium effect that endogenously amplifies the fraction of wasteful simultaneous innovation. Furthermore, formalizing the coordination frictions uncovers a novel link between the “stepping on toes” and “standing on shoulders” externalities—their magnitudes are endogenously determined through the ratio of firms to innovation projects. We find that the “stepping on toes” externality is larger for all parameter values.

Keywords

GrowthFrictionsCoordinationSimultaneous InnovationSearch for IdeasO30O31O32O33O40
Type
Articles
Information
Macroeconomic Dynamics , Volume 27 , Issue 6 , September 2023 , pp. 1528 - 1548
Copyright
© The Author(s), 2022. Published by Cambridge University Press

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Footnotes

†

Previously circulated under the title “Simultaneous Innovation and Economic Growth”. I thank the associate editor, two annonymous referees, Javier Birchenall, William Branch, Hector Chade, Areendam Chanda, Emanuel Gasteiger, Francois Geerolf, Athanasios Geromichalos, Jang-Ting Guo, Christian Hellwig, Lucas Herrenbrueck, Nir Jaimovich, Gregor Jarosch, Peter Klenow, Bruce McGough, David Malueg, Victor Ortego-Marti, Hiroki Nishimura, Nicolas Petrosky-Nadeau, Latchezar Popov, Vincenzo Quadrini, Marlo Raveendran, Guillaume Rocheteau, Peter Rupert, Pierre-Daniel Sarte, Christopher Tonetti, Aman Ullah, Liang Wang, Xiaojun Wang, Pierre-Olivier Weill, Yaniv Yedid-Levi, Alwyn Young, participants at the Spring 2017 Mid-West Macroeconomics Meeting, Spring 2017 West Coast Search and Matching Workshop, UC Graduate Student Macroeconomics Colloquium at UC Irvine, at UC Santa Barbara and at UC Riverside, and seminar participants at Academia Sinica, the Federal Reserve Board, the College of William and Mary, Grinnell College, Lund University, UC Irvine, Temple University, and University of Hawaii, Manoa for helpful comments and suggestions. All errors are my own.

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