In theory and in practice, there is always some ambiguity about what constitutes a
design for a new and different good and what constitutes a copy of an existing design. In
the model, this ambiguity is artificially resolved by the form of the production function Y.
This functional form implies that new goods are never close substitutes for existing goods
since all of the producer durables enter into production in an additively separable fashion.
(See Pascoa, t1987] for a discussion of this general property of 'no neighboring goods.')
Although it greatly simplifies the analysis, this is not a realistic feature of the model. In