Working Paper: NBER ID: w30922
Authors: Daron Acemoglu
Abstract: In the presence of markup differences, externalities and other social considerations, the equilibrium direction of innovation can be systematically distorted. This paper builds a simple model of endogenous technology, which generalizes existing comparative static results and characterizes potential distortions in the direction of innovation. I show that empirical findings across a number of different areas are consistent with this framework's predictions and I use data from several studies to estimate its key parameters. Combining these numbers with rough estimates of differential externalities and markups, I provide suggestive evidence that equilibrium distortions in the direction of technology can be substantial in the context of industrial automation, health care, and energy, and correcting these distortions could have sizable welfare benefits.
Keywords: No keywords provided
JEL Codes: C65; J23; J24; L65; O14; O31; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| negative externalities (D62) | allocation of innovation efforts towards fossil fuels (L71) |
| markup levels (D43) | innovation direction (O36) |
| systemic factors (I14) | equilibrium direction of innovation (O39) |
| lack of proper pricing for environmental damages (Q51) | excessive innovation in fossil fuels (L71) |