Title

Cost Innovation: Schumpeter and Equilibrium. Part 1. Robinson Crusoe

Document Type

Discussion Paper

Publication Date

3-1-2011

CFDP Number

1786

CFDP Revision Date

2011-08-01

CFDP Pages

30

Abstract

Modifying a parallel dynamic programming approach to a simple deterministic economy, we consider the effect of an innovation in the means of production. The success of the innovation is assumed to depend on the availability of financing, locus of financial control, the amount of resources invested, and on a random event. The relationship between money and physical assets is critical. In this first part stress is laid on the innovation behavior of Robinson Crusoe in a premonetary economy, then on his actions in a monetary economy in partial equilibrium. Part 2 considers the closed monetary economy with several differentiated agents.

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