The above discussion of result (d) suggests an interesting implication of
creative destruction that could arise if the arrival parameter A were permitted to
vary from one interval to the next. Suppose, for example, that with each
successful innovation a new value of A was drawn from the finite set {A1,..., Am}
according to a fixed transition matrix B. Transition into a high-A state could
represent a fundamental breakthrough leading to a Schumpeterian wave of
innovations, whereas transition to a low-A state could represent the exhaustion
of a line of research. Then a stationary equilibrium would involve not one level
of research employment but one for each state. Now consider the effects of a
ceteris paribus increase in A2. This parameter change might raise research
employment in state 2, but it would tend to reduce research employment in
other states, by increasing the rationally expected rate of creative destruction
during the next interval. Furthermore, even though the parameter change
represents an unambiguous improvement in the productivity of the research
technology, it might reduce the average level of research employment in
stationary equilibrium. Indeed, Appendix 1 works out a numerical example in
which, in the limit, as A2 becomes infinite, average research employment falls to
zero.