On The Welfare Effects Of Productivity Catch-Up By Laggard Firms

Topics:
Organization
Tags:
Business Operations,
R&D,
Research & Development,
University Of Nottingham,
Welfare
Source:
University of Nottingham

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Overview: The substantial within-industry variation in firm productivity typically observed in the data suggests that there is ample scope for productivity catch-up by laggard firms. We analyse the normative effects of such catch-up. In the short run, where firms' process technologies are fixed, catch-up can reduce social welfare if the initial productivity gap between firms is sufficiently large (the Lahiri/Ono effect). However, in the long run, where firms invest in process R&D to maximize profits, social welfare jumps upwards following catch-up if it causes the major firm's R&D (Research & Development) spending lead to grow. Both qualitative insights appear quite general.

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Format: PDF | Size: 438KB | Date: Apr 2006 | Pages: 27

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