Knowledge Growth and the Allocation of Time

Individuals' time allocation decisions depend on the distribution because the productivity levels of others determine their own chances of improving their productivities through search. The time allocations of everyone in the economy in turn determine the evolution of its productivity distribution. We construct the balanced growth path for this economy, thereby obtaining a theory of endogenous growth that captures in a tractable way the social nature of knowledge creation. We report numerical experiments that describe how the level and rate of growth of productivity along the balanced growth path vary with changes in taxes and other parameters.