Directed Technical Change as a Response to Natural Resource Scarcity

  title={Directed Technical Change as a Response to Natural Resource Scarcity},
  author={John Hassler and Per Krusell and Conny Olovsson},
  journal={Journal of Political Economy},
  pages={3039 - 3072}
We develop a quantitative macroeconomic theory of input-saving technical change to analyze how markets economize on scarce natural resources, with an application to fossil fuel. We find that aggregate US data call for a very low short-run substitution elasticity between energy and the capital/labor inputs. Our estimates imply that energy-saving technical change took off when the oil shocks hit in the 1970s. This response implies significant substitutability with the other inputs in the long run… 
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