Note on the True Price of Factors in Barro’s Growth Model

Abstract

Barro’s model (1990), for purposes of simplification, assumes that producers internalize the learning by doing generated by capital. One consequence is that the price of capital is higher and the price of labor lower than the price of perfect competition which does not internalize the learning by doing. We show how one should properly write the 'Barro’s production function' if you will get a wage rate and interest rate corresponding to that observed in the distribution of income.