Competition, Innovation, and the Business Cycle

A. This paper reports quantitative implications of a stochastic endogenous growth model in which growth displays a concave relationship with respect to competition. This model is consistent with unavoidable facts related to market structure, that other innovation-based endogenous growth models fail to replicate. This model shows promising empirical properties in both the shortand long-term. The current paper argues that this model might be better suited to measuring welfare implications of phenomena involving growth effects. An illustrative exercise reports and compares measurment of the welfare cost of imperfect competition and fluctuations. (