Working Papers

Technological Innovation: Winners and Losers


L. Kogan, D. Papanikolaou, N. Stoffman


We analyze the effect of innovation on asset prices in a tractable, general equilibrium framework with heterogeneous households and firms. Innovation has a heterogenous impact on households and firms. Technological improvements embodied in new capital benefit workers, while displacing existing firms and their shareholders. This displacement process is uneven: newer generations of shareholders benefit at the expense of existing cohorts; and firms well positioned to take advantage of these opportunities benefit at the expense of firms unable to do so. Under standard preference parameters, the risk premium associated with innovation is negative. Our model delivers several stylized facts about asset returns, consumption and labor income. We derive and test new predictions of our framework using a direct measure of innovation. The model's predictions are supported by the data.


Kogan, Leonid, Dimitris Papanikolaou,, and Noah Stoffman (2014), “Technological Innovation, Winners and Losers” working paper.

Kelley School of Business

Faculty & Research