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Econ 100b

Created 4/30/1996
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Lecture Twenty Nine

Research and Development; Determinants of Technological Change
(Economics 100b; Spring 1996)

Professor of Economics J. Bradford DeLong
601 Evans, University of California at Berkeley
Berkeley, CA 94720
(510) 643-4027 phone (510) 642-6615 fax
delong@econ.berkeley.edu
http://www.j-bradford-delong.net

April 10, 1996


Administration
Investment Incentives
Learning from Others: Technology "Embodied" in Capital
Research and Development


Administration


Investment Incentives


How can we see that this is the golden rule? Well, suppose we boost the steady-state capital/effective labor ratio k* by a small amount--and keep it boosted forever. our gain to production is MPK (=r); but we have to boost investment by n+g+d in order to maintain the higher k*.

So consumption changes by Dc = r - (n+g+d). Hence the "Golden Rule"


Policies to boost economic growth through accumulation:



Learning from Others: Technology "Embodied" in Capital


Conclusion?: If you want to grow rapidly, make it very easy to import machinery and equipment...


Research and Development

All the previous discussion has taken the rate of technological progress--the rate of increase g of the efficiency E of the labor force in the production function:

Y = F(K, LE) = Ka(LE)1-a

as a given: as something that is not a function of everything else going on in the economy. In the time that remains today I want to indicate how economic factors do affect the rate of increase of technological knowledge, and thus of the efficiency of labor power.


Note that none of this is in Mankiw's textbook</BLINK> (although it is in David Romer's brand new Advanced Macroeconomics textbook (New York: McGraw Hill, 1996; ISBN 0-07-053667-8).

Basic research (quantum mechanics; the germ theory of disease)

Intermediate knowledge (how to organize an assembly line; how to build semiconductor chips)

Specific knowledge (starting a lawn mower)

All these factors have the potential, at least, to boost the efficiency of labor (sometimes when embodied into the proper organizations or pieces of physical capital).

All types of knowledge have a peculiar property: they are nonrival. Just because one person uses it doesn't mean that someone else can't use it too.

Excludability: if a kind of knowledge isn't excludable, it is hard to see why anyone would spend time and energy developing it (unless subsidized by the government or some organization interested in the advancement of knowledge as an end in itself).

If a kind of knowledge is excludable, then monopoly power: many fewer people will make use of it than could.


Case of applied research more difficult to untangle:

Our patent and copyright system tries to strike a balance--to provide sufficient incentives for innovation without strangling the use of productive technologies.

Every reason to believe that the most important fact about knowledge construction is its non-rival nature. Thus two people should produce scientific and technological knowledge twice as fast as one--and modern technologies that make communication and research faster have the potential to amplify this still further...

Some (indirect) evidence that this is the case. For most of human history human population has been "Malthusian": better technology means nota higher standard of living but instead a higher populaoin supported on the same resource base because the population has been in rough demographic balance.

Look at human populations since "1 million B.C.," as Michael Kremer puts it. The larger the number of people on earth, the faster has population grown. An extra billion people increases the population growth rate by 0.7% per year or so (or did until large chunks of the third world began going through their demographic transitions in this century). Since 1900 the rate of population growth has slowed (indeed, some projections are now showing earth's population peaking around the end of the next century).

Possible to be very optimistic about the human future: more people doing more research than ever before--hence the pace at which knowledge improves must increase.


Possible to be more pessimistic: is useful technological knowledge to be discovered unbounded? Will natural resource scarcity get us in the end?


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Econ 100b

Created 4/30/1996
Go to
Brad De Long's Home Page


Professor of Economics J. Bradford DeLong, 601 Evans
University of California at Berkeley
Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax
delong@econ.berkeley.edu
http://www.j-bradford-delong.net/