Abstract
Having examined the problem of the choice of techniques in the preceding chapter, we will now deal with the way in which technological changes occur endogenously. Technology is not given to economic systems. There exist dynamic interactions between human knowledge and economic variables. There are numerous theories about the process of knowledge accumulation. A psychological approach may supply a “micro foundation” for an understanding of knowledge accumulation, although macro characteristics are not necessarily derived from any micro world. The interactions appear to be so complicated that we cannot hope to develop a perfect theory to explain all aspects of the actual process. We will employ a model to investigate what happens to human and physical capital accumulation and consumption under certain plausible conditions.
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