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153
Market size in innovation: theory and evidence from the pharmaceutical industry
 Quarterly Journal of Economics
, 2004
"... This paper investigates the effect of (potential) market size on entry of new drugs and pharmaceutical innovation. Focusing on exogenous changes driven by U. S. demographic trends, we find a large effect of potential market size on the entry of nongeneric drugs and new molecular entities. These effe ..."
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Cited by 125 (6 self)
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This paper investigates the effect of (potential) market size on entry of new drugs and pharmaceutical innovation. Focusing on exogenous changes driven by U. S. demographic trends, we find a large effect of potential market size on the entry of nongeneric drugs and new molecular entities. These effects are generally robust to controlling for a variety of supplyside factors and changes in the technology of pharmaceutical research. I.
Capital Deepening and NonBalanced Economic Growth
, 2006
"... This paper constructs a model of nonbalanced economic growth. The main economic force is the combination of differences in factor proportions and capital deepening. Capital deepening tends to increase the relative output of the sector with a greater capital share, but simultaneously induces a reall ..."
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Cited by 124 (2 self)
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This paper constructs a model of nonbalanced economic growth. The main economic force is the combination of differences in factor proportions and capital deepening. Capital deepening tends to increase the relative output of the sector with a greater capital share, but simultaneously induces a reallocation of capital and labor away from that sector. We first illustrate this force using a general twosector model. We then investigate it further using a class of models with constant elasticity of substitution between two sectors and CobbDouglas production functions in each sector. In this class of models, nonbalanced growth is shown to be consistent with an asymptotic equilibrium with constant interest rate and capital share in national income. We also show that for realistic parameter values, the model generates dynamics that are broadly consistent with US data. In particular, the model generates more rapid growth of employment in less capitalintensive sectors, more rapid growth of real output in more capitalintensive sectors sectors and aggregate behavior in line with the Kaldor facts. Finally, we construct and analyze a model of “nonbalanced endogenous growth,” which extends the main results of the paper to an economy with endogenous and directed technical change. This model shows that equilibrium will typically involve endogenous nonbalanced technological progress.
The Shape of Production Functions and the Direction of Technical Change
, 2004
"... This paper views the standard production function in macroeconomics as a reduced form and derives its properties from microfoundations. The shape of this production function is governed by the distribution of ideas. If that distribution is Pareto, then two results obtain: the global production func ..."
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Cited by 84 (0 self)
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This paper views the standard production function in macroeconomics as a reduced form and derives its properties from microfoundations. The shape of this production function is governed by the distribution of ideas. If that distribution is Pareto, then two results obtain: the global production function is CobbDouglas, and technical change in the long run is laboraugmenting.
From Physical to Human Capital Accumulation: Inequality in the Process of Development
, 2001
"... This paper develops a unified theory for the dynamic implications of income inequality on the process of development. The proposed theory argues that the replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth has changed the qualitative impact ..."
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Cited by 81 (2 self)
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This paper develops a unified theory for the dynamic implications of income inequality on the process of development. The proposed theory argues that the replacement of physical capital accumulation by human capital accumulation as a prime engine of economic growth has changed the qualitative impact of inequality on the process of development. In early stages of industrialization as physical capital accumulation is a prime source of economic growth, inequality enhances the process of development by channeling resources towards individuals whose marginal propensity to save is higher. In later stages of development, however, as the return to human capital increases due to capitalskill complementarity, human capital becomes the prime engine of growth and equality, in the presence of credit constraints, stimulates investment in human capital and promotes economic growth. As wages increase, however, credit constraints become less binding, differences in the marginal propensity to save decline and the aggregate effect of income distribution on the growth process becomes therefore less significant.
Capital Shares, and a New Perspective on Production Functions.” mimeo
"... Standard growth theory implies that steadystate growth in the presence of exponential declines in the prices of computers and other capital equipment requires a CobbDouglas production function. Conventional wisdom holds that capital shares are relatively constant, so that the CobbDouglas approach ..."
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Cited by 48 (0 self)
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Standard growth theory implies that steadystate growth in the presence of exponential declines in the prices of computers and other capital equipment requires a CobbDouglas production function. Conventional wisdom holds that capital shares are relatively constant, so that the CobbDouglas approach might be a good way to model growth. Unfortunately, this conventional wisdom is misguided. Capital shares exhibit substantial trends and fluctuations in many countries and in many industries. Taken together, these facts represent a puzzle for growth theory. This paper resolves the puzzle by (a) presenting a production function that exhibits a shortrun elasticity of substitution between capital and labor that is less than one and a longrun elasticity that is equal to one, and (b) providing microfoundations for why the production function might take the CobbDouglas form in the long run.
The Theory of Assortative Matching Based on Costly Signals
 REVIEW OF ECONOMIC STUDIES
, 2009
"... We study twosided markets with a finite numbers of agents on each side, and with twosided incomplete information. Agents are matched assortatively on the basis of costly signals. Asymmetries in signaling activity between the two sides of the market can be explained either by asymmetries in size or ..."
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Cited by 48 (4 self)
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We study twosided markets with a finite numbers of agents on each side, and with twosided incomplete information. Agents are matched assortatively on the basis of costly signals. Asymmetries in signaling activity between the two sides of the market can be explained either by asymmetries in size or in heterogeneity. Our main results identify general conditions under which the potential increase in expected output due to assortative matching (relative to random matching) is o¤set by the costs of signaling. Finally, we look at the limit model with a continuum of agents, and point out differences and similarities to the finite version. Technically, the paper is based on the elegant theory about stochastic order relations among differences of order statistics, pioneered by R. Barlow and F. Proschan (1966) in the framework of reliability theory.
Factor Substitution and Factor Augmenting Technical Progress in the US
 Extended 2004 version: ECB Working Paper series
, 2007
"... Abstract: Using a normalized CES function with factoraugmenting technical progress, we estimate a supplyside system of the US economy from 1953 to 1998. Avoiding potential estimation biases that have occurred in earlier studies and putting a high emphasis on the consistency of the data set, requir ..."
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Cited by 28 (7 self)
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Abstract: Using a normalized CES function with factoraugmenting technical progress, we estimate a supplyside system of the US economy from 1953 to 1998. Avoiding potential estimation biases that have occurred in earlier studies and putting a high emphasis on the consistency of the data set, required by the estimated system, we obtain robust results not only for the aggregate elasticity of substitution but also for the parameters of labor and capital augmenting technical change. We find that the elasticity of substitution is significantly below unity and that the growth rates of technical progress show an asymmetrical pattern where the growth of laboraugmenting technical progress is exponential, while that of capital is hyperbolic or logarithmic.
Population and Ideas: A Theory of Endogenous Growth
, 2001
"... This paper proposes that such a justification can be found if the linearity is located in an endogenous fertility equation. It is a fact of nature that the law of motion for population is linear: people reproduce in proportion to their number. By itself, this linearity will not generate per capit ..."
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Cited by 27 (0 self)
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This paper proposes that such a justification can be found if the linearity is located in an endogenous fertility equation. It is a fact of nature that the law of motion for population is linear: people reproduce in proportion to their number. By itself, this linearity will not generate per capita growth, but it is nevertheless the first key ingredient of such a model. The second key ingredient is increasing returns to scale. A justification for increasing returns, rather than linearity in the equation for technological progress, is the fundamental insight of the ideabased growth literature according to this view. Endogenous fertility together with increasing returns generates endogenous growth