The purpose of the paper is to study how technology choice is affected by capital accumulation when there is unemployment and firms engage in oligopolistic competition.
In this infinite horizon model, unemployment results from the existence of efficiency wages. Consumers choose saving optimally, and there is capital accumulation. Firms producing intermediate goods engage in oligopolistic competition and choose technologies to maximize profits. A more advanced technology has a higher fixed cost but a lower marginal cost of production.
In the steady state, it is shown that an increase in population size or a decrease in the discount rate leads intermediate good producers to choose more advanced technologies and the wage rate increases. Interestingly, the equilibrium unemployment rate decreases with the size of the population.
In this model, unemployment results from the existence of efficiency wages and firms engage in oligopolistic competition. One difficulty with efficiency wage models is that saving is not allowed. However, in this model, consumers choose saving optimally, and capital accumulation is allowed. With oligopolistic competition, the authors show that an increase in population size or a decrease in the discount rate leads intermediate good producers to choose more advanced technologies and the wage rate increases. The equilibrium unemployment rate decreases with the size of the population.
