I expound a model of a one-good economy where long-run growth and outp
ut fluctuations are endogenous consequences of the decisions taken by
entrepreneurs on the allocation of their resources between production
and innovation in a Markovian sequence of one-period games. I show, fi
rst, that the log of output follows a process with random walk charact
eristics; second, that, contrarywise to the mechanism at work in Real
Business Cycle models, the variability in the rate of productivity gro
wth does not imply, by itself, the occurrence of any recession; third,
that a recession is the consequence not of a Kydland-Prescott (1982)
negative shock on technology, but of the reallocation of factors in th
e face of an 'increased opportunity' ex ante which the entrepreneurs f
ail to exploit ex post; fourth, and finally, that, although any genera
tion could make itself unilaterally better off by reducing its level o
f research, the one-good economy is intertemporally efficient in that
such a move would imply a reduction in the level of welfare of future
generations.