Factor-eliminating technical change

Perpetual growth requires offsetting diminishing returns to reproducible factors of production. In this article we present a theory of factor elimination. For simplicity and clarity, there is no augmentation of non-reproducible factors, thus excluding the standard engine of growth. By spending resources on R&D, agents learn to change the exponents of a Cobb-Douglas production function. We obtain the economy's balanced growth path and complete transition dynamics. The theory provides a mechanism for the transition from an initial technology incapable of supporting perpetual growth to one with constant returns to reproducible factors that supports it. (C) 2013 Elsevier B.V. All rights reserved.