IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

Technology-Skill Complementarity and Competition Policy

Listed author(s):
  • Gino Gancia

    (Crei and Universitat Pompeu Fabra)

  • Fabrizio Zilibotti

    (University of Zurich)

  • Daron Acemoglu


We construct an endogenous growth model incorporating Nelson and Phelps' insight that human capital and technology are complementary. By assuming that new technologies can initially be operated by skilled labor only, we formalize the idea that the payoff to human capital is positive only if technology is progressing. Over time, new technologies become standardized and can be freely operated by all workers in a fully competitive sector. Since the private value of an innovation is proportional to the number of workers capable of using it, the payoff to R&D depends on the supply of skilled labor. By modeling endogenous skill-acquisition we also introduce a positive feedback effect from innovation to human capital formation. We fully characterize the steady state properties of the model and the transitional dynamics. The model features rich dynamics, with multiple equilibria and poverty traps. Contrary to conventional models, the complementarity between growth and human capital implies that monopoly pricing on new technologies imposes a dynamic distortion over and above the usual static one. The reason is that monopoly power discourage the accumulation of complementary factors (human capital) thereby lowering innovation. In order to maximize growth, the markup must be lower than the one chosen by an unconstrained monopolist, the more so the higher the elasticity of the supply of skilled labor. The model allows us to study simultaneously a second aspect of monopoly power: the expected duration of monopoly profits, captured by the speed of the standardization process. We characterize the joint determination of optimal policies over the two dimensions of monopoly power, price limits and imitation policy, that maximize steady-state welfare. In general, the optimal strategy for poor economies where human capital is low and relatively inelastic requires a combination of high markups but short-lived monopoly rights (fast diffusion). In developed countries where human capital is abundant and more elastic, the optimal policy prescribes low markups but long-lasting monopoly rights (slow diffusion).

To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 408.

in new window

Date of creation: 2008
Handle: RePEc:red:sed008:408
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page:

More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:red:sed008:408. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.