We model non-drastic technological innovation in a duopoly model with differentiated products. We derive profit … from agent utility we are able to fully describe the welfare effects of innovation. We show that the welfare improvements … from innovation come not only as firms accrue higher profits, by charging consumers higher prices, but also as consumers …

innovation is small (i.e., there may be R&D over-investment when the business-stealing effect dominates), the optimal nominal … interest rate would be negative. When the step-size of innovation is large, the optimal nominal interest rate would be positive. …

evolution of the product quality. Thus, process innovation, which reduces production cost, is the main determinant of a firm …'s pricing policy over time. Moreover, the firm invests more in process innovation over time at the expense of product innovation …

model show that innovative productivity is negatively affected by the innovation subsidy; far from ‘doing better' as a …