Working Paper: NBER ID: w17495
Authors: Robert E. Lucas Jr.; Benjamin Moll
Abstract: We analyze a model economy with many agents, each with a different productivity level. Agents divide their time between two activities: producing goods with the production-related knowledge they already have, and interacting with others in search of new, productivity-increasing ideas. These choices jointly determine the economy's current production level and its rate of learning and real growth. Individuals' time allocation decisions depend on the knowledge distribution because the productivity levels of others determine their own chances of improving their productivities through search. The time allocations of everyone in the economy in turn determine the evolution of its knowledge distribution. We construct the balanced growth path for this economy, thereby obtaining a theory of endogenous growth that captures in a tractable way the social nature of knowledge creation. We also study the allocation chosen by an idealized planner who takes into account and internalizes the external benefits of search, and tax structures that implement an optimal solution. Finally, we provide two examples of alternative learning technologies, as concrete illustrations of other directions that might be pursued.
Keywords: endogenous growth; knowledge acquisition; time allocation; productivity distribution
JEL Codes: O00; O15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| individual agents' decisions on time allocation between production and knowledge acquisition (D29) | economy's overall production and growth rates (E23) |
| agents allocate more time to knowledge acquisition (D83) | productivity distribution evolves positively (O49) |
| productivity distribution evolves positively (O49) | sustained economic growth (O29) |
| decentralized equilibrium does not account for positive externalities of knowledge acquisition (D89) | suboptimal growth rates (O40) |
| social planner's allocation of time towards search activities (J29) | higher overall economic growth (O49) |
| different learning technologies (O30) | different growth outcomes (O41) |