An Explanation of the Inverted-U Relationship between Profitability and Innovation
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| Year of publication | 2014 |
| Type | Monograph |
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| Description | The author introduces two models of innovation that are able to explain the inverted-U relationship between profitability and innovation, along with the findings of Aghion et al. (2005) and Hashmi (2005) related to the relationship between profitability and the dispersion of productivity in the industry. The basic model provides a simple and general explanation of the empirical findings. The prospect-theory model provides a more specific explanation of the empirical findings, which includes a behavioral model of managerial decision-making. He shows that both models generate realistic predictions for a wider range of parameter combinations around the specific parameter values. |
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