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.