Endogenous technical change in a competitive economy

We develop a model of endogenous growth in an economy with competitive mark ets. Technical change arises from the intentional actions of entrepreneurs looking for profits. Opportunities for such profits stem from inframarginal rents. This provides a counterexample to the widespread view that endogeno us technical change is possible only if innovating firms can expect to reap monopoly or oligopoly rents. The model has a unique equilibrium which invo lves steady growth at a positive rate. Equilibrium growth is inefficiently low because knowledge spillover effects are neglected, The inefficiency can be eliminated by an interest rate subsidy. (C) 2001 Academic Press.