The Romer model relies on some form of monopoly power in order to reward inventors or researchers for the creation of a new idea. An inventor receives a perpetual patent for the production of a capital good that embodies this new idea. Since no one else is allowed to embody the same idea in a different capital good, the inventor is a monopolist. To determine the value of such a capital good produced by inventor i, denoted xi, we need to know howmuchapotential buyer is willing to pay. In this class of models, final good producers are the only buyers of these differentiated capital goods. Thanks to perfect competition in the market for final goods, the producers are all price takers. They produce the final good by combining labor and capital goods using the following technology