Optimal Localized Production Experience and Schooling.

Three factors of economic growth, i.e., physical capital accumulation, schooling, and learning by doing, are investigated. The special relationship between the first factor and the other two is modeled through adjustment costs in production experience accumulation whenever the production technique changes. This generates a nontrivial two-state variable control problem. Necessary and sufficient conditions for optimality are given. The steady state and the path to it are unique. It is shown that, among others, technique changes deter whereas learning by doing enhances the speed of convergence to the steady state. Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.