Journal of Monetary Economics 27 (1991) 271-292. North-Holland Research and imitation in long-run growth* Aldo Rustichini Northwestern University, Evanston, IL 60201, USA James A. Schmitz, Jr. State University of New York at Stony Brook, Stony Brook, NY 11794, USA Received June 1989, final version received November 1990 Governments have long subsidized both the development of knowledge (research) and the acquisition of knowledge (imitation). This raises some interesting questions. Why subsidize both activities? And if both activities are to be supported, how should subsidy rates for each be set? We develop a theory of long-run growth in which both the initial development of a body of knowledge (research) and its subsequent acquisition by others (imitation) are endogenously determined. Consequently, we are able to provide answers to these and other questions in the context of the model economy. zyxwvutsrqponmlkjihgfedcbaZYXWVUTSRQPONMLKJIHGFE 1. Introduction Government support for research and development (R&D) is widespread. Just as common is public subsidization of imitation. For example, in agricul- ture governments have set up both research stations to develop knowledge as well as extension stations to encourage the use of this research. Agriculture is only a small part of the story however. Governments also support university research and, at the same time, programs encouraging firms to make com- mercial use of this research. More significant quantitatively is the public support of industrial research on the one hand and schooling, such as training of scientists and engineers, on the other. The simultaneous support of both research and imitation raises some interesting questions. *We thank the referee for many valuable comments. They have led to significant improve- ments in the paper. We also thank Nancy Stokey for comments. 0304-3932/91/%03.50 0 1991-Elsevier Science Publishers B.V. (North-Holland)