ECONOMIC-GROWTH WITH NEGATIVE EXTERNALITIES IN INNOVATION

It is argued that the linearity of the R&D sector's technology in Paul Romer's model of endogenous technological progress is very restrictiv e. An externality, stemming from the simultaneity and overlap in resea rchers' activities, is modeled into the R&D sector. The optimality ana lysis of this model leads to a sceptical view of the case for governme nt subsidies for investments in R&D. The quality of human capital, a s ubject discussed rarely if ever in theories of endogenous technologica l progress, is shown to affect the model economy's long-run growth rat e.