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Perfectly Competitive Innovation

Staff Report 303 | Published March 1, 2002

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Perfectly Competitive Innovation


We construct a competitive model of innovation and growth under constant returns to scale. Previous models of growth under constant returns cannot model technological innovation. Current models of endogenous innovation rely on the interplay between increasing returns and monopolistic markets. In fact, established wisdom claims monopoly power to be instrumental for innovation and sees the nonrivalrous nature of ideas as a natural conduit to increasing returns. The results here challenge the positive description of previous models and the normative conclusion that monopoly through copyright and patent is socially beneficial.

Published in: _Journal of Monetary Economics_ (Vol. 55, No. 3, April 2008, pp. 435-453),