Working Paper: NBER ID: w18671
Authors: Leonid Kogan; Dimitris Papanikolaou; Noah Stoffman
Abstract: We develop a general equilibrium model of asset prices in which the benefits of technological innovation are distributed asymmetrically. Financial market participants do not capture all the economic rents resulting from innovative activity, even when they own shares in innovating firms. Economic gains from innovation accrue partly to the innovators, who cannot sell claims on the rents that their future ideas will generate. We show how the unequal distribution of gains from innovation can give rise to a high risk premium on the aggregate stock market, return comovement and average return differences among firms, and the failure of traditional representative-agent asset pricing models to account for cross-sectional differences in risk premia.
Keywords: technological innovation; asset pricing; stock market; economic inequality
JEL Codes: E20; E32; G10; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Technological innovation (O39) | Asymmetric gains among investors (G11) |
| Asymmetric gains among investors (G11) | High risk premium on aggregate stock market returns (G17) |
| Technological innovation (O39) | Distribution of wealth among households (D31) |
| Market incompleteness (D52) | Inability to fully appropriate economic rents from innovations (O39) |
| Inability to fully appropriate economic rents from innovations (O39) | Displacement risks (J63) |
| Technological innovation (O39) | Gains and losses in household wealth (G51) |
| Gains and losses in household wealth (G51) | Affects consumption and investment behaviors (E21) |
| Technological innovation (O39) | Heterogeneous impacts on asset returns and wealth distribution (G19) |
| Technological progress (O49) | Income and wealth inequality (D31) |