Inventive Activity and Growth

 Inventive Activity, Increasing, Returns, Industrial Organization, and Growth

In work inspired by Ken Arrow and stemming from my 1965 Stanford dissertation, (1966 and 1967) I introduced a macroeconomic theory of inventive activity in which “technological knowledge” is a non-conventional factor of production. It follows that there are increasing returns to scale in all factors (including the non-conventional factor) taken together. There are two consequences of this: (1) Purely competitive provision of inventive activity is not possible. (2) The growth process is history dependent, allowing for steady states, explosive growth, cycles, and implosive growth.

Shell (1973) provides the first growth model in which inventive activity depends on industrial organization. Three extreme cases are analyzed: (1) pure competition with government finance of all inventive activity, (2) pure monopoly of capital and technological knowledge, and (3) monopolistic competition, in which innovation is funded from the quasi-rents on advanced technologies.

Shell (JET, 2001) with Gaetano Antinolfi and Todd Keister has returned to these growth models to analyze the basic dynamical system as a function of the degree of returns-to-scale. In the paper (JEDC, 2000) with Phil Auerswald, Stu Kauffman and José Lobo, Shell provides a microeconomic foundation for analyzing technological evolution. Production recipes (or blueprints) are an essential part of the description of the technology.