Factor-eliminating technical change |
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Authors: | Pietro F Peretto John J Seater |
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Institution: | 1. Duke University, United States;2. NC State University, United States |
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Abstract: | Perpetual growth requires offsetting diminishing returns to reproducible factors of production. In this article we present a theory of factor elimination. For simplicity and clarity, there is no augmentation of non-reproducible factors, thus excluding the standard engine of growth. By spending resources on R&D, agents learn to change the exponents of a Cobb–Douglas production function. We obtain the economy's balanced growth path and complete transition dynamics. The theory provides a mechanism for the transition from an initial technology incapable of supporting perpetual growth to one with constant returns to reproducible factors that supports it. |
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