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Knowledge Growth and the Allocation of Time

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  • Robert E. Lucas, Jr.
  • Benjamin Moll

Abstract

We analyze a model economy with many agents, each with a different productivity level. Agents divide their time between two activities: producing goods with the production-related knowledge they already have, and interacting with others in search of new, productivity-increasing ideas. These choices jointly determine the economy’s current production level and its rate of learning and real growth. Individuals’ time allocation decisions depend on the knowledge distribution because the productivity levels of others determine their own chances of improving their productivities through search. The time allocations of everyone in the economy in turn determine the evolution of its knowledge distribution. We construct the balanced growth path for this economy, thereby obtaining a theory of endogenous growth that captures in a tractable way the social nature of knowledge creation. We also study the allocation chosen by an idealized planner who takes into account and internalizes the external benefits of search, and tax structures that implement an optimal solution. Finally, we provide two examples of alternative learning technologies, as concrete illustrations of other directions that might be pursued.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17495.

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Date of creation: Oct 2011
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Publication status: published as Robert E. Lucas Jr. & Benjamin Moll, 2014. "Knowledge Growth and the Allocation of Time," Journal of Political Economy, University of Chicago Press, vol. 122(1), pages 1 - 51.
Handle: RePEc:nbr:nberwo:17495

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  1. Xavier Gabaix, 2008. "Power Laws in Economics and Finance," NBER Working Papers 14299, National Bureau of Economic Research, Inc.
  2. Jesse Perla & Christopher Tonetti, 2012. "Equilibrium Imitation and Growth," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 12-03, New York University, Leonard N. Stern School of Business, Department of Economics.
  3. Jovanovic, Boyan & Nyarko, Yaw, 1996. "Learning by Doing and the Choice of Technology," Econometrica, Econometric Society, Econometric Society, vol. 64(6), pages 1299-1310, November.
  4. de la Grandville,Olivier, 2009. "Economic Growth," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521898010.
  5. Erzo G.J. Luttmer, 2009. "Technology diffusion and growth," Working Papers, Federal Reserve Bank of Minneapolis 672, Federal Reserve Bank of Minneapolis.
  6. Bental, Benjamin & Peled, Dan, 1996. "The Accumulation of Wealth and the Cyclical Generation of New Technologies: A Search Theoretic Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(3), pages 687-718, August.
  7. Jess Benhabib & Alberto Bisin & Shenghao Zhu, 2011. "The Distribution of Wealth and Fiscal Policy in Economies With Finitely Lived Agents," Econometrica, Econometric Society, Econometric Society, vol. 79(1), pages 123-157, 01.
  8. de la Grandville,Olivier, 2009. "Economic Growth," Cambridge Books, Cambridge University Press, Cambridge University Press, number 9780521725200.
  9. Fernando E. Alvarez & Francisco J. Buera & Robert E. Lucas, Jr., 2008. "Models of Idea Flows," NBER Working Papers 14135, National Bureau of Economic Research, Inc.
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