The technology Gradient in the Market Economy

David Mayer-Foulkes and Kurt Hafner

No DTE 606, Working Papers from CIDE, División de Economía

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.

Keywords: Innovation and absorption; large and small scale technological change; technological gradient; long term inequality; long term market inefficiency; innovative-distributive policies. (search for similar items in EconPapers)
Pages: 72 pages
Date: 2017-04
New Economics Papers: this item is included in nep-ino and nep-tid
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