Introduction to Modern Economic Growth By non-rivalry, Romer means that the use of an idea by one producer to increase efficiency does not preclude its use by others While the same unit of labor or capital cannot be used by multiple producers, the same idea can be used by many, potentially increasing everybody’s productivity Let us consider a production function of the form F (K, L, A) , with A denoting “technology” Romer argues that an important part of this technology is the ideas or blueprints concerning how to produce new goods, how to increase quality, or how to reduce costs We are generally comfortable assuming that the production function F (K, L, A) exhibits constant returns to scale in capital and labor (K and L), and we adopted this assumption throughout the first three parts of the book For example, replication arguments could be used to justify this type of constant returns to scale; when capital and labor double, the society can always open a replica of the same production facility, and in the absence of externalities, this will (at least) double output Romer, then, argues that when we endogenize A, this will naturally lead to increasing returns to scale to all three inputs, K, L and A To understand why “non-rivalry” is important here, imagine that A is just like any other input Then the replication argument would require the new production facility to replicate A as well, thus we should expect constant returns to scale when we vary all three inputs, K, L and A But, instead, assume that ideas are non-rival The new production facility does not need to re-create or to replicate A, because it is already out there available for all firms to use In that case, F (K, L, A) will exhibits constant returns in K and L, and increasing returns to scale in K, L and A Thus the non-rivalry of ideas and increasing returns to scale to all factors of production, including technology, are intimately linked This has motivated Romer to develop different types of endogenous growth models, exhibiting different sources of increasing returns to scale, but the non-rivalry of ideas has been a central element in all of them Another important implication of the non-rivalry of ideas is the market size effect, which we will frequently encounter below If, once discovered, an idea can 541