Judd (1985) and Romer (1990) model growth based on horizontal product innovations, using the Dixit-Stiglitz (1977) model of product variety. These models involve no obsolescence; new products are no better than existing ones.They also involve no uncertainty. King and Rebelo (1988) introduce uncertainty into an endogenous growth model by assuming a random rate of return to the accumulation of human capital under conditions of perfect competition. Within the patent-race literature the paper closest to the present is that of Reinganum (1985), which also emphasizes the affinity to creative destruction.The present paper adds to Reinganum's model the general equilibrium effects of future research on the rents created by current research, and of the level of manufacturing employment on the cost of research. The paper also generalizes
the Reinganum model by allowing the stream of innovations to continue forever, and by explicitly analyzing the effect of the future level of research on the prospective reward to current research.