Schumpeterian dynamics: An evolutionary model of innovation and imitation

This paper develops a simple evolutionary model of innovation and imitation. It analyzes how dynamic interactions between equilibrating force of imitation and disequilibrating force of innovation mold the evolutionary pattern of an industry's state of technology and shows that in this Schumpeterian world the industry will never approach a neoclassical equilibrium with perfect knowlwdge even in the long run. The paper also examines the steady-state efficiency distribution of firms that characterizes the industry's long run and obtains some comparative dynamics results.