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Factor Bias and Innovations: A Microeconomic Approach

Montgomery, W. David and Quirk, James P. (1974) Factor Bias and Innovations: A Microeconomic Approach. Social Science Working Paper, 38. California Institute of Technology , Pasadena, CA. (Unpublished)

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This paper contains a microeconomic analysis of the influence of change in relative prices on the direction of inventive activity. A control-theory model of a firm which produces final output and also performs research and development is developed. It is assumed that the output of R & D is factor-augmenting technical change. An innovation possibility frontier for the firm is defined and conditions are found under which it is convex. The major theorems relate the change in innovation in response to changing factor prices to the elasticity of substitution in producing final output and to the nature of the production functions for innovation. Two special cases are examined in detail. When current innovation possibilities are appropriately independent of past innovations, the rate of factor augmentation is the same for all factors where relative prices are constant at any level. Comparing time paths with different, constant relative prices gives conditions under which an increase in the price of a factor directs innovation into lines which economize on that factor. A summary of earlier results on similar subjects is included.

Item Type:Report or Paper (Working Paper)
Additional Information:Research for this paper was supported by The National Science Foundation Grant No. DA 39495. Published in Government Policies and Technological Innovation, National Technical Information Service. National Science Foundation, Washington, D.C. 20550. Vol. III, p. 4-19, State-of-the-Art Surveys, PB244573. March 1974.
Group:Social Science Working Papers
Funding AgencyGrant Number
Series Name:Social Science Working Paper
Issue or Number:38
Record Number:CaltechAUTHORS:20171101-154515894
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:82860
Deposited By: Jacquelyn Bussone
Deposited On:02 Nov 2017 19:34
Last Modified:03 Oct 2019 18:59

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