A model of embodied technical change and employment

A “vintage” framework is described for studying the effects of technical change on economic development, particular attention being given to the level of employment. The framework is based on the notion that investment in new techniques is a major mechanism through which improvements in productivity are obtained. With the specification of demand and investment functions, a simple dynamic model is developed by means of which the effects of both continuous and discontinuous technical changes can be investigated, under various assumptions regarding the response of other economic variables to such changes. It is shown that a variety of behavioral characteristics are produced when technical change does not occur smoothly; in particular, it is suggested that variations in rates of technical change may act as a determinant of fluctuations in other economic variables.     

Technological learning,technological substitution,and technological change

From a simple dynamic model of competition between product lines it is shown that the shape of learning curves has a powerful influence on the dynamics of technological substitution. Learning of both production efficiency and marketing efficiency is considered. It is asserted that both types of learning are important and that the two are complementary. It is further speculated that production learning is probably more important for commodities and in situations of low per capita income, whereas market learning gains ascendancy in cases of high income and specialized and diversified product lines. In closing, it is noted that simple competitive models are misleading, first because complementarities and coevolutionary processes are probably as important in the overall development of technology as are competitive processes, and second because optimization of the technological system's parts does not guarantee improvement of the performance of the system as a whole.     

An endogenous growth model with embodied energy-saving technical change

In this paper, we extend the Romer [Journal of Political Economy 98 (Part 2) (1990) S271] model in two ways. First we include energy consumption of intermediates. Second, intermediates become heterogeneous due to endogenous energy-saving technical change. We show that the resulting model can still generate steady state growth, but the growth rate depends negatively on the growth of real energy prices. The reason is that real energy price rises will lower the profitability of using new intermediate goods, and hence, the profitability of doing research, and therefore have a negative impact on growth. We also show that the introduction of an energy tax that is recycled in the form of an R&D subsidy may increase growth. We conclude that in order to have energy efficiency growth and output growth under rising real energy prices, a combination of R&D and energy policy is called for.     

Measuring embodied technical change in the US local telephone industry

This study attempts to measure the rate of embodied technical change by using a short-run variable cost function that contains arguments for labour and capital quality. In this short-run variable cost model, the expansion of the amount of physical capital increases variable costs due to more maintenance outlays, and then it leads to improvements in capital quality. When a measure of competition is included as a proxy for organizational efficiency, improvements in labour and capital quality explain more than two-thirds of productivity growth. The degree of returns to scale and the shadow cost of capital input in the embodiment cost model are presented as well. The study is based on pooled time-series and cross-section data of eight US local exchange carriers.     

Endogenous growth through investment-specific technological change

This paper examines a model in which growth takes place through investment-specific technological change, which in turn is determined endogenously through research spending. In particular, the role of the degree of substitutability between research spending and new capital construction is explored. It is shown that the effect of a change in the capital tax rate on the growth rate can depend on the degree of substitutability between research spending and new capital construction. Research subsidies tend to have a larger impact on the growth rate than would an investment tax credit of the same magnitude. Increases in the capital tax rate can increase the growth rate of the economy, even in the absence of externalities. In contrast to the existing literature, the welfare cost of capital taxation in this model can be negligible. There may be multiple tax rates on capital that achieve the same growth rate. It is demonstrated that in the presence of certain types of positive externalities, the optimal growth rate can be attained through the use of capital taxes—rather than subsidies.     

Strategic experimentation and disruptive technological change

This paper studies the diffusion of a new technology that is brought to market while its potential is still uncertain. We consider a dynamic game in which an incumbent and a startup firm improve both a new and a rival old technology while learning about the relative potential of both technologies. The main findings are that (i) risk considerations make incumbents with higher market shares more likely to adopt the new technology and (ii) changes in market power are often preceded by a subpar performance of the new technology. We also show that introducing a better new technology or confronting a worse old technology may hurt the startup firm as its new technology is then adopted earlier by incumbents.     

Endogenous technological change with leisure-dependent utility

Summary. This paper investigates the effect of introducing leisure-dependent utility into two models of endogenous technological change. Due to the flexibility in the labour supply the dynamics of the models change significantly. It is shown that if agents attach enough value to leisure in comparison to consumption two balanced growth paths may exist. This implies that economies with the same preferences and the same technology may experience different long-run growth rates. Received: October 17, 1997; revised version: January 6, 1999     

Measuring technological change: Aircraft turbine engines

Recent Rand research indicates that improved estimates of costs and schedules might be obtainable for the development and procurement phases of the system acquisition cycle if techniques were available to assess the technological advance being sought. This report describes the development and testing of such a technique using the technology of aircraft turbine engines as an example. The measure of technological advance developed in this study is intended to capture mainstream trends. It is not able to identify fine differences among turbine engines or to distinguish small differences in contractor proposals. It is intended to provide a broader understanding of the technological advance being sought in an engine development program and to provide information for use in making decisions concerning development policy. Multiple regression analysis is used to estimate a multidimensional tradeoff surface of the parameters characterizing engine technology and to trace out the movement of the tradeoff surface over time. The equation with the best statistical properties contained parameters thought to be important in turbine engine development and had coefficients consistent with a priori notions of technological change.The data base included the first model of a given turbine engine to pass the Model Qualification Test required of all American production engine types of the past 30 years. Examination of the history of turbine engine progress suggests very strongly that single parameter analysis cannot capture the richness of the development process. The data were divided into a number of subsamples covering various time periods to test whether the shape of the tradeoff surface changed over time. When divided into equal halves, the subsamples were indistinguishable. Divided by thirds, the most recent period showed a slight increase in the rate of technological advance, but the increase was barely significant statistically. In nine out of ten cases, the rate of increase of technology of growth versions of engines was less than the average trend of technology for new engines. This result indicates that when design features are frozen in hardware, technology growth cannot take full advantage of newly developed techniques.     

A new method for measuring technological change

This paper presents a new method for testing for technological change. The innovation here is the introduction of a production function which is sufficiently flexible to detect the change. The production function is assumed to be a function not only of the relevant inputs but also of technology-changing parameters.     

Embodied technological change in supplier dominated firms

This paper identifies the role of new capital goods as the main external source of innovation for supplier dominated firms belonging to traditional consumer good industries. After a brief survey on the role of inter-industry technology flows, the results of a field study are presented concerning the amount of technological change embodied in the new machinery acquired during the 1980s by a sample of Italian manufacturing firms producing traditional consumer goods. We show that industries and firms differ in the quality of technological change embodied in (or allowed by) new capital goods, and that such differences depend on industry-specific and firm-specific factors. The former primarily refer to product characteristics, the latter mainly to the age and the affiliation of the firm with an industrial group. The final section contains some policy suggestions for fostering the diffusion of new machinery (embodying technological change) among small firms and traditional industries.     

Using precursors as leading indicators of technological change

Technological forecasters frequently utilize the procedure of “monitoring for precursors” in an attempt to anticipate technological changes. In a recent study on patterns of innovation, it was found that the data provided examples of precursors which could be used to illustrate the monitoring technique. In addition, it proved possible to extend the monitoring technique through the generation of probability distributions. The examples, and the extension, are reported here.     

Determinants of technological change in the service industries

The Service Industries provide numerous examples of how technological change may be impeded. Either the economic state of the industry or the state of scientific and engineering knowledge can limit inventive activity and productivity advance. Consumer ignorance, lack of producer incentives, complex production interdependencies, and market fragmentation are only a few factors limiting the role of demand in stimulating the discovery and diffusion of new services and production techniques. On the cost side, technical uncertainty, time horizons, and discount rates affect decisions to engage in R & D. In addition, strategic market considerations, such as potential entry, reaction speeds of rivals, and numbers of competitors affect the benefits from early introduction of new technologies. These institutional and economic considerations need to be taken into account for technological forecasting related to the Service Industries.     

Evolution,complex systems and technological change 1

A particularly weak area of mainstream economics is its theoretical capacity to handle structural economic change. And yet the advent of major new technologies, combined with the growing integration of the international economic system, has placed structural change high on the policy agenda. This paper suggests an alternative theoretical approach. By portraying economic systems as complex open systems it is possible to view their long-term evolution in a more realistic way. However, in order to do this it is also necessary to borrow from other disciplines such as biology, physics and computer science where research of a similar genre has been carried out. The paper explores what this means for our understanding of many of the underlying concepts associated with technological change and ends with a programmatic plea to broaden the disciplinary bounds of economics.     

Endogenous technological change: a note on stability

Summary. This paper demonstrates that the steady-state solution of the optimal-growth problem in Romer's (1990) model of endogenous technological change is globally saddle-point stable. Surprisingly, the proof of this result is trivial. Interest in the optimal growth path is justified by the fact that there is a (unique) combination of production and R&D subsidies by means of which the optimal growth path is attained as a market equilibrium. Received: October 6, 1998; revised version: April 19, 1999     

Growing income inequality due to biased technological change

Inequality is rising in many countries. This paper presents a growth model in which technological change increases the income share of reproducible factors at the expense of non-reproducible ones. Agents are heterogeneous in wealth. Preferences imply that the saving rate increases with wealth. Consequently, assets (reproducible factor) are less equally distributed than raw labor (non-reproducible factor). This implies that technological change raises the share of the less equally distributed factor, increasing inequality along permanent growth path. When reproducible factors and the state of know-how are low, to adopt new technologies is not profitable, learning-by-doing and technological change ceases, arising stagnation.     

Green taxes and uncertain timing of technological change

This paper concerns the role of environmental taxation in a model with endogenous technological change, where the latter implies that natural inputs become more productive. The timing of technological change is, in turn, uncertain and the likelihood of discovering the new technology is related to the amount of resources spent on R&D. The analysis is based on a dynamic general equilibrium model. One purpose of the paper is to design a policy so as to internalize the external effects arising from pollution and R&D. Another is to develop cost benefit rules for green tax reforms, when the initial equilibrium is suboptimal.