DEPRECIATION AND SCHUMPETERIAN GROWTH

This paper develops a search-theoretic approach to optimal growth where agents anticipate continuing technology advance. When agents require an adaptive search investment to 'match with' any new technology, but when this learning is depreciated at the inception of the next, we show that an economy will sustain either an equilibrium with frequent advances, coupled with inefficient matching, or one with exactly the opposite characteristics. The cyclical implication is that the immediate effect of technology adoption is a downturn, not a boom. The model offers a broader representation of Schumpeterian creative destruction, while augmenting the human capital foundations of endogenous growth theory. Schumpeterian models of endogenous growth have thus far analysed mechanisms of ongoing product and process replacement within a framework of temporary monopoly power. In doing so, the most visible dimensions of Schumpeter's creative destruction are captured: monopoly is the prize for invention, but it also is a prize that others will seek and obtain; hence, continuing attempts to reap the benefits of innovation leaves in its wake the destruction of (previous) commodities, employments, as well as monopoly rents.' Any appraisal of the body of Schumpeter's writings however reveals that