Productivity effects of innovation, stress and social relations

Innovation is a source of increasing productivity, but also of stress. Psychological research shows that individual productivity increases and then decreases as stress levels increase. Agents' stress levels are determined by their own coping ability and by positive and negative spillovers to their social contacts. We model stress and inter-agent dynamics, identifying the relationships between innovation, stress and productivity. We characterize conditions under which multiple equilibria in stress levels and growth rates exist; and under which the dynamics exhibit hysteresis. High rates of innovation can result in high stress equilibrium and have a negative effect on economic growth.

► We model innovation and growth when innovation–induced stress affects productivity.
► Agents' stress levels spills over and are buffered through inter-agent dynamics.
► Multiple steady state levels of aggregate stress exist, and hysteresis is present.
► Hysteresis is consequently observed in the relation between growth and innovation.
► We present a novel explanation of the complex economic effects of social capital.