Ideas and Growth
By Arnold Kling
The nonrivalry of ideas implies that increasing returns to scale is likely to characterize production possibilities. This leads to a world in which scale itself can serve as a source of long run growth. The more inventors we have, the more ideas we discover, and the richer we all are. This also leads to a world where the first fundamental welfare theorem no long necessarily holds. Perfectly competitive markets may not lead to the optimal allocation of resources. This means that other institutions may be needed to improve welfare. The patent system and research universities are examples of such institutions, but there is little reason to think we’ve found the best institutions–—after all these institutions are themselves ideas.
The paper is filled with equations. Some of the ideas can be gleaned from chapter 22 of Learning Economics. Jones adds focus on the theory that population growth raises economic growth by increasing the number of inventors.
For Discussion. If ideas are such a critical component of growth, and ideas are almost costless to transfer, what does this say about the large differences in standard of living across countries?