On Robust Asymmetric Equilibria in Asymmetric R&D-Driven Growth Economies

In R&D-driven growth models with asymmetric fundamentals the steady-state equilibrium R&D investments are industry-specifc and they are such that R&D returns are equalized across industries. Return equalization, however, makes investors indifferent as to where to target research and, hence, the problem of allocation of R&D investments across industries is indeterminate. Agents' indifference creates an ambiguous investment scenario. We assume that agents hold "ambiguous" beliefs on the per-industry profitability of their R&D investments. Investors' aversion towards ambiguity eliminates the indeterminacy of the investment problem. In particular, the asymmetric return-equalizing equilibrium is robust against a however small degree of investors' ambiguity aversion.