This paper develops and estimates a model of indivisibilities in shipping and economies of scale in consolidation. It uses highly detailed data on imports where it is possible to observe the contents of individual containers. In the model, firms are able to adapt to indivisibility constraints by using consolidation strategies and by making adjustments to shipment size. The firm determines the optimal number of domestic ports to use, taking into account that adding more ports lowers inland freight cost, at the expense of a higher indivisibility cost. The estimated model is able to roughly account for Walmart’s port choice behavior. The model estimates are used to evaluate how mergers or dissolutions of firms or countries, and changes in variety, affect indivisibility costs and inland freight costs.

We study a simple model of factor saving technological innovation in a concave framework. Capital can be used either to reproduce itself or, at additional cost, to produce a higher quality of capital that requires less labor input. If higher quality capital can be produced quickly, we get a model of exogenous balanced growth as a special case. If, however, higher quality capital can be produced slowly, we get a model of endogenous growth in which the growth rate of the economy and the rate of adoption of new technologies are determined by preferences, technology, and initial conditions. Moreover, in the latter case, the process of growth is necessarily uneven, exhibiting a natural cycle with alternating periods of high and low growth. Growth paths and technological innovations also exhibit dependence upon initial conditions. The model provides a step toward a theory of endogenous innovation under conditions of perfect competition.

The notion of skilled-biased technological change is often held responsible for the recent behavior of the U.S. skill premium, or the ratio between the wages of skilled and unskilled labor. This paper develops a framework for understanding this notion in terms of observable variables and uses the framework to evaluate the fraction of the skill premium's variation that is caused by changes in observables. A version of the neoclassical growth model is used in which the key feature of aggregate technology is capital-skill complementarity: the elasticity of substitution is higher between capital equipment and unskilled labor than between capital equipment and skilled labor. With this feature, changes in observables can account for nearly all the variation in the skill premium over the last 30 years. This finding suggests that increased wage inequality results from economic growth driven by new, efficient technologies embodied in capital equipment.