Innovation, human capital destruction and firms' investment in training

We analyse the effect of human capital obsolescence due to the introduction of technological innovations on the long-run growth rate, and show that in equilibrium the pace of technical change may be faster than is socially op timal. In such cases, the existence of market imperfections, and their cost s for firms, may improve the welfare for the society as a whole. In particu lar, we assume that firms do not have full information on workers' skills b ut can arrange some form of internal training that permits them to acquire the lacking information. Training costs reduce research and development inv estments by firms and in this way draw the market equilibrium closer to the social optimum.