A convex increasing marginal installation cost on one of two complementary capital inputs allows the neoclassical growth model to match observed transition paths for output, savings, the real interest rate, and the marginal value of installed physical capital. It can do so for both narrow and...

This paper provides an explanation for the secular increase in the price of services relative to that of manufactured goods that relies on capital accumulation rather than on an exogenous total factor productivity growth differential. The key assumptions of the two-sector, intertemporal...