On Accounting "Capital" in Horizontal Innovation Models
I identify and correct some logical problems of the 1990 Romer model of horizontal innovation. The model's setting where all the produced inputs are durable is inconsistent with the proposed Dixit-Stiglitz production function; also, Romer's "accounting measure of capital" (and its variants in the literature) is not a theoretically proper measure on which the rate of interest is to be calculated. The correction is straightforward. However, a more fundamental issue is at stake: the structure of horizontal innovation models necessitates consideration of the problem of value, but the current literature deliberately assumes it away, generating internal inconsistency of various forms.
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- Gancia, Gino & Zilibotti, Fabrizio, 2005.
"Horizontal Innovation in the Theory of Growth and Development,"
Handbook of Economic Growth,
in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 3, pages 111-170
- Gino Gancia & Fabrizio Zilibotti, 2005. "Horizontal Innovation in the Theory of Growth and Development," Working Papers 200, Barcelona Graduate School of Economics.
- Gino Gancia & Fabrizio Zilibotti, 2005. "Horizontal innovation in the theory of growth and development," Economics Working Papers 831, Department of Economics and Business, Universitat Pompeu Fabra.
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