ABSTRACT

Theithfirm(industry,sector,economy,orwhatever)isassumed tooperateaccordingtoathree-factorproductionfunctionas

Q;=A;F(K,L;T);,(37) where,asabove,Qrepresentsoutput,Aisaneutraldisembodied shiftfactor,KandLaremeasuresofthestockofphysicalcapital andlabor(i.e.,humancapital),andTisthestockoftechnical capitalavailabletothefirm.Tinturncanbewrittenintermsofthe alternativesourcesthroughwhichthefirmacquirestechnical knowledgeas

T;=G(OT;,BT;,GT;,IT).(38) FollowingCharlesRiverAssociates[49]andTassey[335],OT;isthe ithfirm'sown(self-financed)stockoftechnicalknowledge;BT;is theithfirm'sborrowed(orpurchased)stockoftechnicalknowledge;GT;istheithfirm'sgovernmentfinancedtechnicalknowledge;andITistheinfratechnologyaffectingthefirm.Most commonly,OT;isassumedtoberelatedtothefirm'sprevious R&Defforts,RD,as

(39)

wheretheaccumulationweightsajreflecttheinfluenceofaj-period distributedlagandobsolescencerateofR&D.