Economic Progress and Skill Obsolescene

Abstract

We construct an OLG model of skill vintages with complementarities to examine skill obsolescence when individuals can choose vintages. We find that the problem of excessive progress can exist only in the absence of coordination and transfers among those currently alive. However, too little progress can occur in equilibrium, even in the presence of coordination and transfers. Moreover, allowing coordination or transfers may reduce aggregate surplus. Equilibria with too little progress can take the form of either cycles or stagnation. The introduction of outside debt can eliminate the cyclical equilibrium, leading to a Paretoimproving increase in the rate of progress.