NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Are Nonconvexities Important For Understanding Growth?

Paul Romer

NBER Working Paper No. 3271 (Also Reprint No. r1510)*
Issued in February 1991
NBER Program(s):   EFG

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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