slides4-handout - Econ407 J Tessada Spring 2009 Intro Ideas...

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Econ407 J. Tessada Spring 2009 Intro Ideas A simple model: AK Growth with Externalities Endogenous Technical Change An Application Econ407 Advanced Macroeconomics Lecture 4: Endogenous Growth Jos´e Tessada University of Maryland - College Park February 19, 24 and 26, 2009 Econ407 J. Tessada Spring 2009 Intro Motivation Technology Ideas A simple model: AK Growth with Externalities Endogenous Technical Change An Application Motivation Solow model highlights role of tech progress in economic growth Given this conclusion, it seems natural to study technology and its determinants But before that we need to define what we mean by “technology” Usually we interpret technology as the way in which we combine inputs to obtain final output So, the production function equation describes technology When thinking about growth we care about technological progress too How does technology evolve?
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Econ407 J. Tessada Spring 2009 Intro Motivation Technology Ideas A simple model: AK Growth with Externalities Endogenous Technical Change An Application Technology Let us start with some examples of technology and technological evolution 1 Henry Ford’s assembly line 2 Inventory management 3 Use of iron oxide: in prehistoric times was used for painting, more recently it was used for video tapes. . . 4 Any other examples? Ideas are behind technological improvements = want to look at ideas from an economic point of view Then move on to study models of economic growth in which technological progress arises as part of the model These are called endogenous growth models Our focus will be on a very long-run view of the process of economic growth Econ407 J. Tessada Spring 2009 Intro Ideas Economics of Ideas Ideas and Markets Endogenous growth models A simple model: AK Growth with Externalities Endogenous Technical Change An Application The Economics of Ideas Not all goods are “created equal”, so what is special about ideas? There are two dimensions in which ideas are different 1 Rivalry 2 Excludability To see the difference, think of a blueprint to use a machine (a) The booklet itself is rivalrous (b) But the content isn’t: ideas can be transmitted even if the blueprint cannot be sold and even if another person is using the same idea at the same time Example: students answering an exam at the same time! Excludability on the other hand refers to the ability of the owner to charge for the use of the good If you can limit access and use = you can charge for the use Ideas are not fully excludable, patents and copyrights partially provide excludability tools Consider the following classification of some goods (partially taken from Jones)
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Econ407 J. Tessada Spring 2009 Intro Ideas Economics of Ideas Ideas and Markets Endogenous growth models A simple model: AK Growth with Externalities Endogenous Technical Change An Application Rivalrous Goods Nonrivalrous goods HIGH Pencil Paid satellite TV Degree of excludability Blueprint Software National defense LOW Fish in the sea Calculus Basic math theorems
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