122 Agricultural Research and Productivity 



Specification 



The model consists of three building-blocks: the firm, the prod- 

 uct, and the industry. It is assumed that technology is static apart 

 from the introduction of the innovation. 



The firm is defined by an initial endowment of the 

 entrepreneur's own labor, Lj in firm /, and skills, E^. All other fac- 

 tors are bought freely on the market; the industry is competitive 

 and firms do not have monopoly or monopsony power. It is 

 assumed that the firm produces several products, and that com- 

 plementarity exists between skills and other factors of produc- 

 tion, thus the shadow price, opportunity cost, vv^, of the 

 entrepreneur's own labor^ is an increasing function of his skills 



vv = \v{E) 



(7.1) 

 w'> 0. 



The product is produced by own labor, L, and by other factors, 

 v-^ in a production function in which a knowledge component, a 

 function g, enters in a multiplicative form (Hicks-neutrality is 

 assumed) 



q=f{L,v)g (7.2) 



The knowledge factor is a function of skills and learning by doing 

 (Arrow 1962). Learning is proportional to the experience at the in- 

 dustry level,'' //, 



H{t)=^ \ Q(s)ds (7.3) 



Jo 



where Q is the total industry output of the new product, and time 

 is measured from the introduction of the innovation. 



2. A joint input of "raw labor" and skills. 



3. Labor is measured in physical units, the other factors (the variable v) include 

 land and capital and are measured in money value. 



4. Whether experience at the industry level is relevant for the individual's 

 knowledge function depends on the industry's organization. In modern agricul- 

 ture, with strong public and commercial extension service, industry's experience 

 is probably more important than the individual producer's. 



