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This paper introduces and partially develops a new model of endogenous technological change, viewed as the product of a class of problem‐solving producers. The model, based on earlier work by Eaton and Kortum, is built up from the premise that all knowledge resides in the head of some individual person and the knowledge of a firm, or economy, or any group of people is simply the knowledge of the individuals that comprise it. The model is applied to an economy with a cohort structure. A calibration of the model using cross‐section earnings data, in addition to aggregate GDP growth, is considered.
Robert E. Lucas (Tue,) studied this question.