Assignment title: Information
Problem 4.4 in Barro and Sala-i – Martin Economic growth (page235)
Spillovers from Average Capital per Worker
In the model presented in Section 4.3, assume that the firm's productivity
parameter, Ai; depends on the economy's average capital per worker, K/L
rather than on the aggregate capital stock, K. The production function is assumed to
be Cobb-Douglas:
Derive the growth rates for the decentralized economy and for the social planner.
Comment on how the scale effect discussed in Section 4.3 does not appear
with this new specifcacation.