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Introduction to Modern Economic Growth rents of previous incumbents This raises the possibility that distortionary policies may arise endogenously as a way of protecting the rents of politically powerful incumbents Models of creative destruction therefore raise the political economy issues that are central for understanding the fundamental causes of economic growth and provide us insights about both the endogenous nature of technology and about the potential resistance to technological change Schumpeterian models also enable us to make greater contact with the industrial organization of innovation In particular, the process of creative destruction implies thatmarket structure may be evolving endogenously over time Nevertheless, in the baseline model, markups are constant and there is always a single firm supplying the entire market This is, however, a consequence of the simplifying assumptions in the baseline model When this model is enriched by allowing cumulative or step-by-step innovation, the industrial organization aspects become more important We have seen that in a version of the baseline model with step-by-step innovation monopoly markups evolve over time and that the market structure is determined endogenously Perhaps more interestingly, we have seen that the effects of competition and patent protection are potentially quite different from both the baseline model of competitive innovations and from models of expanding varieties This suggests that Schumpeterian models might provide a useful framework for the analysis of a range of industrial policies, including anti-trust policies, licensing and intellectual property rights policies 14.5 References and Literature The baseline model of competitive innovations presented in Section 14.1 is based on the work by Aghion and Howitt (1992) Similar models have also been developed by Segerstrom, Anant and Dinopoulos (1990), Grossman and Helpman (1991a,b) Aghion and Howitt (1998) provide an excellent survey of many Schumpeterian models of economic growth and numerous extensions The specific modeling assumptions made in the presentation here draw on Acemoglu (1998), which also uses the aggregate production function with proportional quality improvements and costs of production and R&D increasing proportionally with quality The original Aghion and Howitt (1992) approach is very similar to that used in Section 14.2 646