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Welfare Implications of Non‐scale R&D‐based Growth Models
Author(s) -
Steger Thomas M.
Publication year - 2005
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.1467-9442.2005.00426.x
Subject(s) - economics , welfare , investment (military) , scale effects , growth model , scale (ratio) , deadweight loss , monetary economics , growth rate , endogenous growth theory , microeconomics , market economy , human capital , mathematics , geometry , politics , political science , law , physics , quantum mechanics
Non‐scale R&D‐based growth models imply that the decentral and the socially optimal long‐run growth rate coincide. Nonetheless, the distortions inherent in a market economy bias both the R&D investment share and the saving rate. As a result, the level of the balanced growth path may differ substantially between the two types of solution, implying a dramatic loss in welfare. The present paper explores the sources and magnitude of this gap. In addition, the consequences of public policies are examined, distinguishing between isolated policy measures from an overall policy programme.