Uncertain Technological Change

---

Paul de Hek, Department of Economics, Erasmus University

To examine the relationship between uncertainty and growth, a
model of endogenous technological change is used where sustained
growth stems from intentional investments in R&D from profit-maximizing
firms. The uncertainty arises from the productivity of these invest-ments
in R&D. The main result of this analysis is that the relation-ship
between long-run growth and uncertainty depends on two main
factors - the returns to scale in knowledge creation (increasing or non-increasing)
and the value of the elasticity of intertemporal substitution
(higher or lower than some critical value). Based on empirical studies
on the returns to scale in knowledge creation ("non-increasing") and
the value of the elasticity of intertemporal substitution ("higher than
the critical value"), we expect a negative relationship between long-run
growth and uncertainty regarding the productivity of knowledge
creation.

Date: 07 December-00 0000