American Economic Review Vol. 93 No. 3 2003
Animal Spirits Through Creative Destruction
Abstract
We show how a Schumpeterian process of creative destruction can induce rational, herd behavior by entrepreneurs across diverse sectors as if fueled by “animal spirits.” Consequently, a multisector economy, in which productivity improvements are made by independent, profit-seeking entrepreneurs, exhibits regular booms, slowdowns, and downturns as part of the long-run growth process. Our cyclical equilibrium has higher average growth, but lower welfare than the corresponding acyclical one. We show how a negative relationship can emerge between volatility and growth across cycling economies, and assess the extent to which our model matches several features of actual business cycles.
- DOI
- 10.1257/000282803322156972
- Volume
- 93
- Issue
- 3
- Pages
- 530-550
- Language
- en
- Sources
- bibtex:phds-export.bib crossref openalex