An Entropy-Constrained Model of Induced Technical Change

April 2, 2017

This paper proposes an entropy-constrained model of induced technical change (ITC) and estimates the innovation possibilities frontier (IPF) of the OECD countries. 

The entropy constrained ITC model generalizes the canonical model by allowing the economic agent to have a positive degree of uncertainty. This leads to a qualitatively different result in that the solution of the same maximization problem is not a single point on the frontier but a probability distribution of the possible states of the technological change. The Bayesian inference is then employed and successfully recovers the single IPF of the entropy constrained ITC model for the OECD countries.

Author: Jangho Yang
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