Endogenous Capital- and Labor-Augmenting Technical Change in the Neoclassical Growth Model

Arbeitspapier

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 develop a novel 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. 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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 5643

Classification and Topics

• Classification: Wirtschaft ; Innovation and Invention: Processes and Incentives ; Technological Change: Choices and Consequences; Diffusion Processes ; One, Two, and Multisector Growth Models
• Subject: endogenous technical change ; induced innovation ; capital- and labor-augmenting technical change ; neoclassical growth model

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Irmen, Andreas ; Tabakovic, Amer
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/128352
• Last update: 10.03.2025, 11:44 AM CET