We introduce two modifications into the standard real business cycle model: habit persistence preferences and limitations on intersectoral factor mobility. The resulting model is consistent with the observed mean equity premium, mean risk free rate and Sharpe ratio on equity. The model does...

We study a simple model of factor saving technological innovation in a concave framework. Capital can be used either to reproduce itself or, at additional cost, to produce a higher quality of capital that requires less labor input. If higher quality capital can be produced quickly, we get a...

Market booms are often followed by dramatic falls. To explain this requires an asymmetry in the underlying shocks. A straightforward model of technological progress generates asymmetries that are also the source of growth cycles. Assuming a representative consumer, we show that the stock market...

Intellectual property protection involves a trade-off between the undesirability of monopoly and the desirable encouragement of creation and innovation. As the scale of the market increases, due either to economic and population growth or to the expansion of trade through treaties such as the...

We construct a competitive model of innovation and growth under constant returns to scale. Previous models of growth under constant returns cannot model technological innovation. Current models of endogenous innovation rely on the interplay between increasing returns and monopolistic markets. In...

Innovation and the adoption of new ideas are fundamental to economic progress. Here we examine the underlying economics of the market for ideas. From a positive perspective, we examine how such markets function with and without government intervention. From a normative perspective, we examine...

The data show that an increase in government provided old-age pensions is strongly correlated with a reduction in fertility. What type of model is consistent with this finding? We explore this question using two models of fertility: one by Barro and Becker (1989), and one inspired by Caldwell...

Innovations and their adoption are the keys to growth and development. Innovations are less socially useful, but more profitable for the innovator, when they are adopted slowly and the innovator remains a monopolist. For this reason, rent-seeking, both public and private, plays an important role...

When credit markets to finance investment in human capital are missing, the competitive equilibrium allocation is inefficient. When generations overlap, this failure can be mitigated by properly designed social arrangements. We show that public financing of education and public pensions can be...

In the modern theory of growth, monopoly plays a crucial role both as a cause and an effect of innovation. Innovative firms, it is argued, would have insufficient incentive to innovate should the prospect of monopoly power not be present. This theme of monopoly runs throughout the theory of...