Growth with non-drastic innovations and the persistence of leadership

In a model of endogenous growth with improvements in the quality of products, I provide a new explanation of the persistence of leadership by assuming that innovations are non-drastic and that the current leader has a move advantage in the next patent race. Under these circumstances, the value of being leader exceeds temporary monopoly profit, since the leader reaps an extra-profit in the next patent race despite free entry by outsiders. This will increase the incentive to innovate and hence the rate of growth, which is higher than in the leapfrogging model. However, the welfare comparison of the leapfrogging and persistent-leadership equilibria is ambiguous. (C) 2001 Elsevier Science B.V. All rights reserved.