Auburn How TFP is Endogenously Determined in The Economy Economic Paper Analysis

PART A:

The following questions are based on Restuccia (2014): “Barriers to Capital Accumula-

tion in a Model of Technology Adoption and Schooling,” published in the Review of Economic

Dynamics and Control.

1. Explain how TFP is endogenously determined in this economy.

2. Solve for the optimal investment in human capital by maximizing individual earnings

net of education investment.

3. Explain how the barriers to investment in physical capital distort not only capital

investment decision but also the human capital investments.

4. Critique one aspect of the model and propose a potential way to address the issue.

PART B:

Read Erosa, Koreshkova, and Restuccia (2010) ”How Important is Human Capital? A

Quantitative Theory Assessment of World Income Inequality,” published in the Review of

Economic Studies

1. List key model features. That is, make a bullet list that tells us what kind of agents live

in the economy, how they differ, what decisions they make, then describe technologies,

markets and government.

2. What is the most crucial parameter for the quantitative results, and why?