Funding research and educating people in growth model with increasing population
Abstract
This paper formalizes an interdependence between a Research and Development (R&D) sector that produces knowledge and a human capital sector that educates individuals such that both activities appear equally essential to sustain per capita long-term growth. It treats the question of research funding in a model without any intermediate goods production sector, and assumes that knowledge is directly protected by patents so that any user must reward innovators directly. To keep the analysis simple, an equilibrium in which there is perfect competition on private goods markets is constructed. Knowledge is rewarded at its marginal profitability.