The General Equilibrium Effects of Localised Technological Progress : A Classical Approach

We study the general equilibrium effects of localised technical progress à la Atkinson-Stiglitz on income distribution in economies in which capital is a vector of reproducible and heterogeneous goods. We show that there is no obvious relation between ex-ante profitable innovations and the income distribution that actually emerges in equilibrium. Unlike in the standard macroeconomic literature, localised technical progress may lead to indeterminacy in equilibrium factor prices, and individually rational choices of technique do not necessarily lead to optimal outcomes. Innovations may even cause the disappearance of all equilibria