Synopsis

The chapter gives an overview of the efforts to model technological change, which to date have been largely disappointing. Macroeconomic models that treat technology as a residual quantity are discussed first, both in their original classical growth accounting formulation as well as in their contemporary use in macroeconomic energy and environmental models. The chapter then presents sectoral models as well as models based on microeconomic foundations. The latter two types of models offer greater insights and explanations of the dynamics of technological change. These are characterized by features of path dependency, i.e., change in a persistent direction influenced by past decisions, technological uncertainty, diversity, learning, and interaction between economic agents.

Models of Technological Change

We start with a disappointing confession. There is no single model, or class of models, that captures all the aspects of technological change outlined in Chapter 2 in even a rudimentary integrated fashion. It is not from lack of trying. Hundreds of models have been developed with various levels of aggregation, theoretical underpinnings, and empirical corroboration. We cannot do justice to them all here. They are considered in two categories: at a macrolevel and a sectoral/microlevel. Illustrative examples for each are presented, along with their (few) strengths and (numerous) deficiencies and omissions. How to improve this situation (at least partially) will be discussed in the Postscript chapter. Ideas and applications developed by the author and his colleagues at IIASA will be presented, together with illustrations primarily from the energy sector.