Special Interests and Technological Change

Abstract

We model an OLG economy where productivity growth comes from two alternative sources: process innovation and learning-by-doing. There is a trade-o¤ between the two in so far as frequent technological updates reduce the scope for learning on existing technologies. A con ‡ict is shown to arise between the young and the old, because the former favor innovation while the latter prefer learning. We model the interaction between di¤erent generations and short-lived policy makers as a dynamic common agency problem, where competing generations invest a certain amount of resources to lobby either for the maintainance of the current technology or the adoption of a new one. By focusing on truthful Markov perfect equilibria, we characterize the political equilibrium and show its dependence on the underlying technological parameters.¤ We would like to thank

The Political Economy of Entrepreneurship: An Introduction

“…They emphasized that the strength of the affected group must be taken into account. Bellettini and Ottaviano [39] build on this insight and develop a model where the regulation of new technology is determined by lobbying rather than voting.…”

The nexus of economic and institutional evolution

“…This paper considers formal institutions as a specific form of technology. Similar to the regulatory authority that is responsible for technology adoption in Bellettini and Ottaviano (2005) (BO, henceforth), the government in our model chooses the level of formal institutions. 6 Our model departs from BO in various respects, however.…”

Menu Auctions and Influence Games with Private Information

“…In the almost three decades that have passed since the seminal strategic analysis by Bernheim and Whinston (1986), the truthful equilibrium of their complete-information model of menu auctions and influence games has become a work horse in a wide range of settings. Applications include international trade (e.g., Grossman and Helpman (1994, 1995), Dixit, Grossman and Helpman (1997), Goldberg and Maggi (1997)), combinatorial auction design (e.g., Milgrom (2007)), industrial organization (e.g., Bernheim and Whinston (1989), Inderst and Wey (2007)) and political economy and public finance (e.g., Aidt (1998), LeBreton (1998, 2001), Persson and Tabellini (2002), Bellettini and Ottaviano (2005)). …”