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The technology Gradient in the Market Economy

Author

Listed:
  • David Mayer-Foulkes

    (Division of Economics, CIDE)

  • Kurt A. Hafner

    (Heilbronn University)

Abstract

Technological creation and mass production are usually associated with large-scale production, while technological absorption is found more often in small-scale competitive firms. Thus, the link between the innovative and absorptive sectors defines a technological and market power gradient that is a key endogenous feature of the economy. We construct a stylized two sector mass market economy model, one with monopolistic and the other with perfect competition, that innovate and absorb technologies. Innovation profits are concentrated among a few owners of large-scale innovation, and economy-wide wage levels reflect the lagging average technological level. The model shows there are innovative-distributive policies that can increase profits. Cointegration and weak-exogeneity results based on our study corroborate the assertion that the large-scale sector drives aggregate employment, wages and inequality.

Suggested Citation

  • David Mayer-Foulkes & Kurt A. Hafner, 2017. "The technology Gradient in the Market Economy," Working papers DTE 606, CIDE, División de Economía.
    • Handle: RePEc:emc:wpaper:dte606
    as

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    References listed on IDEAS

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