Endogenous capital- and labor-augmenting technical change in the neoclassical growth model

Andreas Irmen and Amer Tabakovic

Journal of Economic Theory, 2017, vol. 170, issue C, 346-384

Abstract: The determinants of the direction of technical change and their implications for economic growth and economic policy are studied in the one-sector neoclassical growth model of Ramsey, Cass, and Koopmans extended to allow for endogenous capital- and labor-augmenting technical change. We build on a recently developed micro-foundation for the competitive production sector that rests on the idea that the fabrication of output requires tasks to be performed by capital and labor (Irmen, 2017). Firms may engage in innovation investments that increase the productivity of capital and labor in the performance of their respective tasks. These investments are associated with new technological knowledge that accumulates over time and sustains long-run growth. We show that the equilibrium allocation is not Pareto-efficient since both forms of technical change give rise to an inter-temporal knowledge externality. An appropriate policy of investment subsidies may implement the efficient allocation.

Keywords: Endogenous technical change; Induced innovation; Capital- and labor-augmenting technical change; Neoclassical growth model (search for similar items in EconPapers)
JEL-codes: O31 O33 O41 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Related works:
Working Paper: Endogenous Capital- and Labor-Augmenting Technical Change in the Neoclassical Growth Model (2015)
Working Paper: Endogenous Capital- and Labor-Augmenting Technical Change in the Neoclassical Growth Model (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:170:y:2017:i:c:p:346-384

DOI: 10.1016/j.jet.2017.05.002

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