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Derive the growth rates for the decentralized economy

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Reference no: EM13920573

The question is also in Barro,RJ, X,salai-martin "Economic Growth" 2nd edition book in page 235.

Spillovers from Average Capital per Worker

In the model presented in Section 4.3, assume that the firm's productivity parameter, Ai; depends on the economy's average capital per worker, K/L rather than on the aggregate capital stock, K. The production function is assumed to be Cobb-Douglas:

Yi = A. (Ki)α.(K/L)1-α

Derive the growth rates for the decentralized economy and for the social planner. Comment on how the scale effect discussed in Section 4.3 does not appear with this new specifcacation.

Reference no: EM13920573

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