Description:

Chad Jones (Stanford): "Recipes and Economic Growth: A Combinatorial March Down an Exponential Tail"

Abstract: New ideas are often combinations of existing ideas, a point emphasized by Romer
(1993) and Weitzman (1998). But this insight is largely absent from state-of-the-art
models. Separately, Kortum (1997) created a new framework for modeling growth,
one where ideas are draws from a probability distribution, and argued that the
Pareto distribution plays an essential role. What happened to the Romer-Weitzman
observation that combinations matter, and do we really need to make such a strong
distributional assumption to get growth? This paper shows that combinatorial increases in the number of draws from standard thin-tailed distributions leads to
exponential economic growth. More broadly, the paper provides a theorem linking
the behavior of the max extreme value to the number of draws and the shape of the
upper tail for probability distributions.