Growth and ideas in a perfectly competitive world: A complement

Abstract

In this short article, I build an idea-based growth model with perfect competition in a representative household economy. I obtain significant findings that confirm Boitier (2019). First, a competitive equilibrium, increasing returns to scale, and innovations can be tenable. For that, firms must raise capital from shareholders, and the production function must show decreasing returns to scale in the stock of ideas and in labor. Second, the developed idea-based growth model admits a balanced growth path similar to the one provided in an idea-based growth model with monopolistic competition. Whether innovations are competitive or thrive under monopolistic competition does not constitute an engine-driving long-run growth. Importantly, this reconciles Romer (1990, 2015) with Boldrin and Levine (2008).