Composition of R&D and technological cycles

This paper investigates the existence of 'technological cycles' that arise endogenously from certain tradeoffs between research and development inherent in the technological features of R&D production. It analyzes the composition of R&D expenditures and models the associated internal structure and dynamics of the innovation process explicitly. The model includes externalities and cumulative aspects of R&D processes. The discussion is initially developed in a deterministic setting for both the first-best and the market cases. The dynamics leading to optimal cycles are fully explored. For specific examples, results are given with regard to i) level of research investment, ii) stability of steady states and cycles, and iii) amplitude of cycles. Extensions to a stochastic setting are also presented.