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Creating a Learning SocietyA New Approach to Growth, Development, and Social Progress$
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Joseph Stiglitz and Bruce Greenwald

Print publication date: 2014

Print ISBN-13: 9780231152143

Published to Columbia Scholarship Online: November 2015

DOI: 10.7312/columbia/9780231152143.001.0001

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Learning in a Closed Economy—the Basic Model

Learning in a Closed Economy—the Basic Model

(p.265) Chapter Seven Learning in a Closed Economy—the Basic Model
Creating a Learning Society

Joseph E. Stiglitz

Bruce C. Greenwald

Columbia University Press

This chapter examines learning in a closed economy using a two-good (agriculture and manufacturing) closed economy model. It explains how policies promoting the industrial sector lead to higher rates of growth and welfare. It shows that even if there is more innovation under monopoly, it does not mean that welfare is higher. Society pays a cost from the monopoly distortions. Only if the dynamic benefits are large enough to offset the static distortions is monopoly preferable to a competitive equilibrium. Thus, Schumpeter's enthusiasm for monopoly is not justified; one can do better by government intervention—imposing a subsidy on the learning sector, paid for either by a tax on the other sector or, if feasible, by a lump sum tax.

Keywords:   agriculture, manufacturing, closed economy, economic policy, economic growth, welfare, subsidies, monopoly, government intervention

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