We propose a model of growth driven by the co-evolution of institutions and technology. To be consistent with Douglass North (1990, 1991, 1994), institutions are defined as a type of collective knowledge about a specific environment that can prescribe how to adapt general technology before the latter can be actually used. Institutions, then, are treated as a factor in the innovation process, and as such can be purposely accumulated. The simultaneous accumulation of institutions and technology are modeled as an evolutionary game whereby boundedly-rational .rms choose how much to allocate to ‘institutional spending’ vis-a-vis research expenditures, in anticipation of changes in monopoly pro.ts from technological innovation. Using Taylor and Jonker’s (1978) Replicator Dynamics to describe the evolution of such strategies, we are able to show how this transition process converges to the steady state model of Romer (1990).
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Find related papers by JEL classification: O30 - Economic Development, Technological Change, and Growth - - Technological Change - - - General O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes O49 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Other P48 - Economic Systems - - Other Economic Systems - - - Other Economic Systems: Political Economy; Legal Institutions;
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