A Model Of Optimal Equilibrium Growth

Our aim in these notes is to exposit a model of optimal equilibrium growth. The model is strictly in the Solow tradition. The model has two features which distinguish it from most other work on the subject. These are, first, that the model is convex on the technological side and, second, that fixed factors are explicitly included. The difference between our model and the standard single sector growth model lies in the fact that the marginal product of capital does not converge to zero as the level of inputs go to infinity. Existence and characterization results are provided along with some preliminary analyses of taxation and international trade policies. It is shown that the long-run growth rate in per capita consumption depends, in the natural way, on the parameters describing tastes and technology. Finally, it is shown that some policies have growth effects while others affect only levels.