American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Innovation in Space
American Economic Review
vol. 102,
no. 3, May 2012
(pp. 447–52)
Abstract
This paper shows how competition for land may lead firms to optimally innovate in spite of the market being perfectly competitive. When bidding for a location, firms can enhance their bid by investing in innovations that make the land more valuable. Firms are willing to innovate because the non-replicability of land implies that they will not be undercut by some other producer leading to losses as in the standard theory. In the absence of spillovers over space and over time, firms will optimally innovate. Empirical evidence from U.S. metropolitan areas supports the predictions of the theory.Citation
Desmet, Klaus, and Esteban Rossi-Hansberg. 2012. "Innovation in Space." American Economic Review, 102 (3): 447–52. DOI: 10.1257/aer.102.3.447JEL Classification
- O31 Innovation and Invention: Processes and Incentives
- G31 Capital Budgeting; Fixed Investment and Inventory Studies; Capacity