On Accounting "Capital" in Horizontal Innovation Models

Man-Seop Park

No 727, Discussion Paper Series from Institute of Economic Research, Korea University

Abstract: 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.

JEL-codes: O41 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2007
New Economics Papers: this item is included in nep-ino
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