The previous two chapters introduced the basic models of endogenous technological change.
These models provide us with a tractable framework for the analysis of aggregate technological change, but focus on a single type of technological change. Even when there are multiple types of machines, these all play the same role in increasing aggregate productivity.
Consequently, technological change in these models is always “neutral” (that is, Hicks-neutral as defined in Chapter 2). There are two important respects in which these models are incomplete. First, technological change in practice is often not neutral: it benefits some factors of production and some agents in the economy more than others. Only in special cases, such as in economies with Cobb-Douglas aggregate production functions, these types of biases can be ignored. The study of why technological change is sometimes biased towards certain factors or sectors is both important for understanding the nature of endogenous technology and also because it clarifies the distributional effects of technological change, which determine which groups will embrace new technologies and which will oppose them. Second, limiting the analysis to only one type of technological change potentially obscures the different competing effects that determine the nature of technological change.The purpose of this chapter is to extend the models of the last two chapters to consider directed technological change, which endogenizes the direction and bias of new technologies that are developed and adopted. Models of directed technological change not only generate new insights about the nature of endogenous technological progress, but also enable us to ask and answer new questions about recent and historical technological developments.
I start with a brief discussion of a range of economic problems in which considering the endogenous bias of technology is important and also present some of the general economic insights that will be important in models of directed technological change. The main results are presented in 15.3. The rest of the chapter generalizes the results and presents a few of their applications. Section 15.6 uses these models to return to the question raised in Chapter 2 concerning why technological change might take a purely labor-augmenting (Harrod-neutral) form. Section 15.8 presents an alternative approach to this question suggested by Jones (2005).
15.1.