SAFE Visitors Program joint with Finance Seminar: Daniel Andrei (McGill University)

When:17 September 2019
, 12:00
 - 13:15
Where:Room E.01, House of Finance

Title: The Risk of Schumpeterian Competition

Speaker: Daniel Andrei (McGill University) presents a joint work with Bruce I. Carlin


While previous work has focused on the rewards of creative destruction, this paper explores how Schumpeterian competition a ects risk. We analyze a game in a Lucas endowment economy in which non-cooperative agents compete for the rents of a consumption stream and bear the risk imposed by creative destruction. Compared to rst best, the quest for oligopoly rents leads to over-investment in uncertain projects, which magni es both the volatility of future consumption and the uncertainty about the expected growth rate of the economy. Within the context of our model, this results in spikes in the pricedividend ratio. If competition for rents is suciently intense, the elevated price-dividend ratio predicts negative future expected excess returns, which is consistent with the patterns typically observed during periods of marked technological change.

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