Everyday experience and a simple logical argument show that nonconvexities are
essential for understanding growth. Compared to previous statements of this well known
argument, the presentation here places more emphasis on the distinction between two of
the fundamental attributes of any economic good: rivalry and excludability. It also
emphasizes the difference between public goods and the technological advances that are
fundamental to economic growth. Like public goods, technological advances are rionrival
goods. Hence, they are inextricably linked to nonconvexities. But in contrast to public
goods, which are nonexcludable, technological advances generate benefits that are at least
partially excludable. Hence, innovations in the technology are for the most part privately
provided. This means that nonconvexities are relevant for goods that trade in private
markets. Consequently, an equilibrium with price-taking in all markets cannot be
sustained. Concluding remarks describe some of the recent equilibrium growth models that
do not rely on price-taking and highlight some of the implications of these models.
*Published:
The American Economic Review, Vol. 80, No. 2, pp. 97-103, (May 1990).
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