Paul Romer's Work
Economic Growth, Technological Change, and Climate Change
“Endogenizing technological change. In his approach to understanding economic growth over decades and centuries, Solow assumed an exogenous steady path for technology – the ultimate source of economic growth and well-being. In this sense, he did not address the very root of long-run growth. Romer, instead, focused precisely on the crux of how market economies might develop new technologies through proﬁt-oriented research-and-development (R&D) eﬀorts. His solution laid the foundation of what is now ubiquitously referred to as endogenous growth theory. This theory argues that “ideas” are crucial for economic growth, and elaborates on the preconditions for the production of ideas. New ideas, Romer argued, are very diﬀerent than most economic goods by being nonrival: one person’s use of an idea does not preclude others from using the same idea. But he also went on to emphasize another aspect of ideas: the extent to which they are excludable. Even if an idea can be used by two ﬁrms at the same time, it may be possible to exclude one of them from this use, either by regulation/patent law or by means of technical protection (e.g., via encryption). Excludability is critical for ideas to be produced in the marketplace, Romer reasoned”.
Ideas, Nonrivalry, and Endogenous Growth
“In 2018, Paul Romer and William Nordhaus shared the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel. Romer was recognized “for integrating technological innovations into long-run macroeconomic analysis”. This article reviews his prize-winning contributions. Romer, together with others, rejuvenated the ﬁeld of economic growth. He developed the theory of endogenous technological change, in which the search for New Ideas by proﬁt-maximizing Entrepreneurs and Researchers is at the heart of economic growth. Underlying this theory, he pinpointed that the nonrivalry of ideas is ultimately responsible for the rise in living standards over time.”
Stanford’s Published Paper
Are Ideas Getting Harder to Find?
“In many growth models, economic growth arises from people creating ideas, and the long-run growth rate is the product of two terms: the effective number of researchers and their research productivity. We present a wide range of evidence from various industries, products, and ﬁrms showing that research effort is rising substantially while research productivity is declining sharply. A good example is Moore’s Law. The number of researchers required today to achieve the famous doubling every two years of the density of computer chips is more than 18 times larger than the number required in the early 1970s. Across a broad range of case studies at various levels of (dis)aggregation, we ﬁnd that ideas — and in particular the exponential growth they imply — are getting harder and harder to ﬁnd. Exponential growth results from the large increases in research effort that offset its declining productivity”