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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.

Suggested Citation

  • Robert E. Lucas, Jr. & Benjamin Moll, 2011. "Knowledge Growth and the Allocation of Time," NBER Working Papers 17495, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17495
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    References listed on IDEAS

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    1. König, Michael & Lorenz, Jan & Zilibotti, Fabrizio, 2016. "Innovation vs. imitation and the evolution of productivity distributions," Theoretical Economics, Econometric Society, vol. 11(3), September.
    2. Jovanovic, Boyan & Nyarko, Yaw, 1996. "Learning by Doing and the Choice of Technology," Econometrica, Econometric Society, vol. 64(6), pages 1299-1310, November.
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    5. 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.
    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, vol. 37(3), pages 687-718, August.
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    9. Luttmer, Erzo G.J., 2012. "Technology diffusion and growth," Journal of Economic Theory, Elsevier, vol. 147(2), pages 602-622.
    10. Jesse Perla & Christopher Tonetti, 2014. "Equilibrium Imitation and Growth," Journal of Political Economy, University of Chicago Press, vol. 122(1), pages 52-76.
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    12. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352-352.
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    More about this item

    JEL classification:

    • O0 - Economic Development, Innovation, Technological Change, and Growth - - General
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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