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Neoclassical Growth with Fixed Factor Proportions

In: Readings in the Theory of Growth

Author

Listed:
  • R. M. Solow
  • J. Tobin
  • C. C. Weizsäcker
  • M. Yaari

Abstract

We analyze in this paper a completely aggregated model of production in which output is produced by inputs of homogeneous labor and heterogeneous capital goods, and allocated either to consumption or to use as capital goods. Allocations are irreversible: capital goods can never be directly consumed. Fixed coefficients rule: any concrete unit of capital has a given output capacity and requires a given complement of labor. Technological progress continuously differentiates new capital goods from old. But we assume that the “ latest model ” in capital goods has no smaller capacity and no higher labor requirement than any older-model capital goods with the same reproduction cost. Thus each instant’s gross investment will take the form of the latest-model capital. There is no problem of the optimal “ depth ” of capital. The main effect of an increase in gross investment is to modernize the capital stock in use.

Suggested Citation

  • R. M. Solow & J. Tobin & C. C. Weizsäcker & M. Yaari, 1971. "Neoclassical Growth with Fixed Factor Proportions," Palgrave Macmillan Books, in: F. H. Hahn (ed.), Readings in the Theory of Growth, chapter 9, pages 68-102, Palgrave Macmillan.
  • Handle: RePEc:pal:palchp:978-1-349-15430-2_9
    DOI: 10.1007/978-1-349-15430-2_9
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