How are resources allocated across different R&D areas (i.e., problems to be solved)? As a result of dynamic congestion externalities, the competitive market allocates excessive resources into those of high return, being those with higher private (and social) payoffs. Good problems are tackled too soon, and as a result the distribution of open research problems in the socially optimal solution stochastically dominates that of the competitive equilibrium. A severe form of rent dissipation occurs in the latter, where the total value of R&D activity equals the value of allocating all resources to the least valuable problem solved. Resulting losses can be substantial.

We study an R&D race between an established firm and a startup under asymmetric information. R&D investment brings success stochastically, but only if the innovation is feasible. The only asymmetry is that the established firm has better information about the feasibility of the innovation. We show that there is an equilibrium in which the poorly informed startup wins more often, and has higher expected profits, than the better-informed incumbent. When the informational asymmetry is large, this is the unique equilibrium outcome. The channel by which better information becomes a competitive disadvantage appears to be new and stems from the fact that better information dulls the incentive to learn from one’s rival

We study the adoption, diffusion, and impacts of the Universal Product Code (UPC) between 1975 and 1992, during the initial years of the bar code system. We find evidence of network effects in the diffusion process. Matched-sample difference-in-differences estimates show that firm size and trademark registrations increase following UPC adoption by manufacturers. Industry-level import penetration also increases with domestic UPC adoption. Our findings suggest that bar codes, scanning, and related technologies helped stimulate variety-enhancing product innovation and encourage the growth of international retail supply chains

Online contests have become a prominent form of innovation procurement. Contest platforms often display a real-time public leaderboard to provide performance feedback. The impact of information disclosure on players’ decisions is theoretically ambiguous: some players may get discouraged and quit, while others may decide to keep working to remain competitive. We investigate the impact of a leaderboard on contest outcomes using two complementary approaches. First, we estimate a dynamic model using observational data and compare the equilibria with and without a leaderboard. Second, we present experimental evidence from student competitions. We find that a leaderboard on average improves competition outcomes

We propose a methodology exploiting time diary data and “leisure Engel curves” to infer quality changes across leisure activities and measure the effects on the marginal return to leisure. We study leisure returns for men aged 21–30, who have shifted leisure toward video gaming and recreational computing and have had larger market work hour declines than older men or women since 2004. We show that recreational computing is distinctly a leisure luxury for younger men. By increasing the value of time, innovations to this leisure technology have lowered young men's work hours by 2%, or much of their work hours decline compared to older men's

Previous articleNext article Free2021 Lucas Prize AnnouncementPDFPDF PLUSFull Text Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinked InRedditEmailQR Code SectionsMoreThe Robert E. Lucas Jr. Prize is awarded biannually for the most interesting paper in the area of Dynamic Economics published in the Journal of Political Economy in the preceding two years. The prize was established in 2016 on the occasion of the celebration of Lucas’s seminal contributions to economics and his Phoenix Prize award.Papers published between August 2018 and June 2020 were considered for the third prize, which has been awarded to Charles I. Jones and Jihee Kim for “A Schumpeterian Model of Top Income Inequality” ( Journal of Political Economy 126 [5]: 1785–1826).This paper pertains to a topic that has received much attention as of late: why is income inequality at the top so high, and why has it risen sharply in the United States, though less so in other countries? The authors provide an empirical analysis and complement it with a model to understand the facts.The authors observe that top income inequality was relatively low and stable between 1960 and 1980 but then rose sharply in the United States, Norway, and the United Kingdom. They argue that rising top income inequality to a great extent reflects rising labor income inequality, where labor income is broadly conceived and includes entrepreneurial income such as “business income.” The authors confirm that labor income is well described by a Pareto distribution, that is, that the expected income above some level is in a constant proportion relative to that level (see their fig. 4). The rising income inequality manifests itself in that this proportion has risen between 1980 and 2005.For their model, they focus on entrepreneurial activity and the resulting income as the driving force. They assume that a small share of entrepreneurs can turn their efforts into fast income growth, until they are replaced by competitors via creative destruction. This interplay produces the Pareto distribution and income inequality. They calculate the resulting efforts provided by entrepreneurs. Higher growth prospects and a lower creative destruction rate imply higher efforts as well as higher inequality. In their measurement, they calculate the contribution of each. A numerical approximation shows that the model can well account for the observed changes in income inequality. Ultimately, then, economic forces due to information technology, taxes, and policies related to innovation blocking may explain the varied patterns.This important paper is part of a growing literature that helps us more deeply understand the engines of growth, the sources of inequality, and their rich interplay. Policy choices seeking adjustments to one are likely to affect the other. Future research can build on the work by Jones and Kim to provide more detailed guidance. Previous articleNext article DetailsFiguresReferencesCited by Journal of Political Economy Volume 129, Number 2February 2021 Article DOIhttps://doi.org/10.1086/713243 Views: 375 © 2021 by The University of Chicago. All rights reserved.PDF download Crossref reports no articles citing this article