Institutional Technology and Economic Growth

An endogenous model of constitutional changes and economic growth links the temporal decline in private market returns when technology is constant with the returns to rule changes realized in a political market. There is a steady state constitutional setting in which all rule changes have been incorporated that is analytically equivalent to the neoclassical steady state. As in the neoclassical model, private-sector technological progress postpones the steady state. To the extent the original constitutional setting promotes innovation, the evolutionary process toward the steady state is delayed. The model yields a theory of revolution based on forces leading to the adoption of inefficient changes in the constitutional setting.