5 OURNAL OF POLITICAL ECONOMY A1(d2K)-(N2H2)=C1+1 (4) Physical capital depreciates at rate 8, and investment is irreversible (≥0) K2=1-8K Human capital, which is embodied in each worker, depreciates at rate 8 and can be produced by combining physical capital-k(1-2) units-with efficiency units of labor. 8 Each worker has one unit of time in each period and consumes an exogenously specified number L of leisure hours. The remaining 1-L-N, hours are devoted to accumulation of human capital generating(I-L- N)H, efficiency units of labor. H2=A2{E1-(1-L-N1)HP-8H2(6) The technology described by equations(4)-(6)is similar to the one adopted by Lucas(1988, scc. 4), with two main differences: chere are no externalities, and physical capital is used in the production of human capital In specifying this technology, I made three assumptions that make it possible to solve in closed form for the steady-state growth rate he two production functions were chosen to be Cobb-Douglas, and K and H were assumed to depreciate at the same rate 8. The appendix to the working paper version of this research( Rebelo 1990)demon strates that the properties emphasized below continue to hold when the production functions are neoclassical with positive cross-partial derivatives and the two depreciation rates are different. Equations(4)-(6)imply that in the steady state, Cp Ke I, and H, all grow at the same rate. there is a continuum of values for chis com- mon growth rate that can be sustained with this technology. This makes clear that in order for endogenous steady-state growth to be feasible, the technology to produce capital does not need to be linear but only constant returns to scale, that is, linearly homogeneous. The The embodiment assumption plays a key role in the analysis. It implies that nd the number of efficiency units that would result from their collaboration would be 4NH. In the economy described in this section. this would introduce increasing returns to scale, and hence a competitive equilibrium ould not exist: production and accumulation of skills would take pl an eco The range of sustainable rates of growth is harder to c because it is determined both by the equations that describe gy and by those that characterize efficient production plans(see eqg. [7]-[121) analogous to that of the basic model conomy can sustain th rate between the steady-state interest rate r, described in(13), and -8