Endogenous Technical Change in a Competitive Economy
We develop a model of endogenous growth in an economy with competitive markets. Technical change arises from the intentional actions of entrepreneurs looking for profits. Opportunities for such profits stem from inframarginal rents. This provides a counterexample to the widespread view that endogenous technical change is possible only if innovating firms can expect to reap monopoly or oligopoly rents. The model has a unique equilibrium, which involves steady growth at a positive rate. Equilibrium growth is inefficiently low because knowledge spillover effects are neglected. The inefficiency can be eliminated by an interest rate subsidy.
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- Romer, Paul M, 1990.
"Endogenous Technological Change,"
Journal of Political Economy,
University of Chicago Press, vol. 98(5), pages S71-102, October.
- Peretto, Pietro F, 1996.
"Sunk Costs, Market Structure, and Growth,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 895-923, November.
- Radner, Roy, 1972. "Existence of Equilibrium of Plans, Prices, and Price Expectations in a Sequence of Markets," Econometrica, Econometric Society, vol. 40(2), pages 289-303, March.
- Karl Shell, 2010. "Inventive Activity, Industrial Organization and Economic Growth," Levine's Working Paper Archive 1408, David K. Levine.
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