Economics Seminar - Industry Life Cycles in General Equilibrium

Technological breakthroughs generate predictable life cycles at the industry level. However, the macroeconomic implications of these cycles are not well understood, as academic research has mainly focused on partial equilibrium models and case studies of particular industries. In our paper, we address this issue by building a general equilibrium model of industry life cycles, featuring endogenous technological breakthroughs, endogenous follow-up innovation choices, and oligopolistic competition between a finite number of heterogeneous firms. We calibrate the model using data from the ICT Revolution, and show that it can replicate empirical lifecycles. We then study the impact of different R&D subsidy policies.