Knowledge that Transforms

Abstract : The most important characteristics of capital goods are durability and non-transferability. When time goes on, the number of periods during which a capital good can survive decreases, and it becomes less productive. The other problem relates to the fact that no capital good can be transferred to another industry once it has been installed in some industry. This paper re-examines the dynamic input-output model of Leontief's type from this point of view, and shows how it has to be altered, on the assumptions that there is no technical change and that prices are so flexible as to establish the long-run equilibrium price conditions instantaneously. The authors begin by proving the dynamic substitution theorem, assuming the existence of differentiable general neo-classical production functions, taking vintages of capital goods into explicit account. Then the existence of the golden equilibrium of the model is discussed. (Author)