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Introduction to Modern Economic Growth Aghion and Howitt (1992) also discuss uneven growth and potential growth cycles, which were presented in Section 14.2 The effect of creative destruction on unemployment is first studied in Aghion and Howitt (1994) The implications of creative destruction for firm-specific investments are discussed in Francois and Roberts (2001) and in Martimort and Verdier (2003) Step-by-step or cumulative innovations have been analyzed in Aghion, Harris and Vickers (1999) and Aghion, Harris, Howitt and Vickers (2001) The model presented here is a simplified version of Acemoglu and Akcigit (2006), which includes a detailed analysis of the implications of intellectual property rights policy and licensing in this class of models The proof of existence of a steady-state equilibrium under a somewhat more general environment is provided in that paper The notion of Markov Perfect Equilibrium used in Section 14.3 is a standard equilibrium concept in dynamic games and is a refinement of subgame perfect equilibrium, that restricts strategies to depend only on payoff-relevant state variables Fudenberg and Tirole (1994) contain a detailed discussion of Markov Perfect Equilibrium, which we will encounter again in Part of the book when we look at dynamic political economy games Blundell (1999), Nickell (1999) and Aghion, Bloom, Blundell, Griffith and Howitt (2005) provide evidence that greater competition may encourage economic growth and technological progress The latter paper shows that industries where the technology gap between firms is smaller are typically more innovative Aghion, Harris, Howitt and Vickers (2001) and Aghion, Bloom, Blundell, Griffith and Howitt (2005) show that in step-by-step models of innovation greater competition may increase growth Aghion, Dewatripont and Ray (2000) provide another reason why competition may encourage growth In their model competitive pressures improve managerial incentives and efficiency 14.6 Exercises Exercise 14.1 (1) Prove that in the baseline model of competitive innova- tions in Section 14.1, all R&D will be undertaken by entrants, and there will never be R&D by incumbents [Hint: rewrite (14.12) by allowing for a choice of R&D investments] 647