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Equilibrium Bias of Technology

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Daron Acemoglu

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Abstract

This paper presents three sets of results about equilibrium bias of technology. First, I show that when the menu of technological possibilities only allows for factor-augmenting technologies, the increase in the supply of a factor induces technological change relatively biased toward that factor-meaning that the induced technological change increases the relative marginal product of the factor becoming more abundant. Moreover, this induced bias can be strong enough to make the relative marginal product of a factor increasing in response to an increase in its supply, thus leading to an upward-sloping relative demand curve. I also show that these results about relative bias do not generalize when more general menus of technological possibilities are considered. Second, I prove that under mild assumptions, the increase in the supply of a factor induces technological change that is absolutely biased toward that factor-meaning that it increases its marginal product at given factor proportions. The third and most important result in the paper establishes the possibility of and conditions for strong absolute equilibrium bias-whereby the price (marginal product) of a factor increases in response to an increase in its supply. I prove that, under some regularity conditions, there will be strong absolute equilibrium bias if and only if the aggregate production function of the economy fails to be jointly concave in factors and technology. This type of failure of joint concavity is possible in economies where equilibrium factor demands and technologies result from the decisions of different agents. Copyright The Econometric Society 2007.

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File URL: http://hdl.handle.net/10.1111/j.1468-0262.2007.00797.x
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Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 75 (2007)
Issue (Month): 5 (09)
Pages: 1371-1409
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Handle: RePEc:ecm:emetrp:v:75:y:2007:i:5:p:1371-1409

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Cited by:
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  1. Maciej K. Dudek & ówna Handlowa, 2006. "On Artificial Structural Unemployment," Computing in Economics and Finance 2006 171, Society for Computational Economics. [Downloadable!]
  2. Macedo, Jorge Braga de & Martins, Joaquim Oliveira, 2006. "Growth, Reform indicators and Policy complementarities," FEUNL Working Paper Series wp484, Universidade Nova de Lisboa, Faculdade de Economia. [Downloadable!]
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  3. AMIGUES, Jean-Pierre & MOREAUX, Michel, 2008. "Dedicated Technical Progress with a Non-renewable Resource: Efficiency and Optimality," IDEI Working Papers 497, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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  4. Paolo Epifani & Gino Gancia, 2004. "Increasing Returns, Imperfect Competition and Factor Prices," Economics Working Papers 953, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2005. [Downloadable!]
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