Abstract:

This dissertation presents two essays on some of the aspects of innovation and dissemination of ideas. The first chapter explores the connection between innovation and job mobility. One of the crucial aspects of innovative activity is the fact that all new ideas are built on top of each other. Thus, economic growth driven by innovation depends on the exchange of ideas together with their carriers---people, and job mobility may play an important role in economic growth. The first chapter presents a model where human capital of old workers on the job and that of new hires are in fact complements in the production of new human capital, making turnover necessary for any growth. New information coming with new workers not only disseminates, but also helps in generating brand-new ideas. The first chapter captures this effect and analyzes how it results in endogenous growth. It characterizes the optimal growth rate that requires non-zero level of turnover in an industry and the wages (depending on the worker's level of human capital today and tomorrow) that support the optimal industry path as equilibrium.

The second chapter presents a game-theoretic framework for analyzing R&D activity in the presence of perfect spillovers and heterogeneous firms. Unlike previous literature, in this model only some of the most efficient firms find it profitable to invest in R&D whereas the rest are free-riding. Under some reasonable assumptions, the firms decrease their investment in R&D with stopping investing altogether in the order of their ability levels. An intuitive and amenable to simulations method of finding all equilibria ( Q -minimizing) is found, and a particular well-behaved type of equilibria (where no free-riding firm starts investing again) is characterized. This model seems to be particularly useful for analyzing R&D activity in the industry life-cycle framework where entry and exit are driven by firms' heterogeneity, and so should the R&D process be as well.