Growth comes from deliberate investment in ideas, and because ideas are non-rival the returns to them need not diminish.
Romer's 1990 model. The key property is non-rivalry: a formula can be used by everyone at once, so investment in ideas escapes the diminishing returns that bound capital accumulation.
In practice
- A firm that licences its process to two hundred others loses nothing by the licensing, which is what makes ideas different from machinery.
- A country that educates researchers finds the returns compound rather than diminish, because each result is usable by everyone at once.
- Standing
- The successor to Solow–Swan, which left technological progress unexplained.
- Further reading
- Wikipedia
- Subject
- Economics & Incentives
- Essay
- The theories behind every argument about money