Growth with non-drastic innovations and the persistence of leadership

In a model of endogenous growth with improvements in the quality of product s, I provide a new explanation of the persistence of leadership by assuming that innovations are non-drastic and that the current leader has a move ad vantage in the next patent race. Under these circumstances, the value of be ing leader exceeds temporary monopoly profit, since the leader reaps an ext ra-profit in the next patent race despite free entry by outsiders. This wil l increase the incentive to innovate and hence the rate of growth, which is higher than in the leapfrogging model. However, the welfare comparison of the leapfrogging and persistent-leadership equilibria is ambiguous. (C) 200 1 Elsevier Science B.V. All rights reserved.