Abstract
This paper presents a model displaying sustained growth in output resulting from the accumulation of knowledge. The accumulation of knowledge is endogenous, determined by a level of study chosen by optimizing agents. Although knowledge can be owned and sold, its equilibrium price is below its value to future production, implying that the equilibrium suffers from a Paretononoptimal underaccumulation of knowledge. These features of the equilibrium result from two special properties of knowledge: (i) an agent's stock of knowledge is undiminished by the transmission of that knowledge to someone else and (ii) the transmission of knowledge cannot be fully observed.
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