The Accumulation of Wealth and the Cyclical Generation of New Technologies: A Search Theoretic Approach.

In this paper, sustained technological progress results from the feedback between technical change and the accumulation of wealth. The production technology is affected by a productivity factor which ensues from research and development. The research and development process is described as a sequential search problem in which optimal decisions depend on current levels of wealth and technology. The resulting growth path displays invention cycles. A discovery of a significant technological improvement at the end of a 'search' phase is followed by periods of growth without search. Eventually sufficient wealth is accumulated, research and development resumes, and a new cycle begins. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.