The accumulation of wealth and the cyclical generation of new technologies: A search theoretic approach

In this paper sustained technological progress results from the feedback between technical change and the accumulation of wealth. The production technology is affected by a productivity factor which ensues from research and development. The research and development process is described as a sequential search problem in which optimal decisions depend on current levels of wealth and technology. The resulting growth path displays invention cycles. A discovery of a significant technological improvement at the end of a "search" phase is followed by periods of growth without search. Eventually sufficient wealth is accumulated, research and development resumes and a new cycle begins.