This chapter provides an endogenous economic model that involves innovation in the two sectors of general purpose technology (GPT) and special purpose technology (SPT) and examines the economic implications of different patterns of interaction between the two sectors. It attempts to endogenize both the GPT and SPT sectors and to create a dynamic general equilibrium model that examines the economic implications of different institutional arrangements regarding interaction between the GPT and SPT sectors. The chapter outlines social welfare and market equilibrium and discusses socially desirable technology policies. The optimal direction for technology policy differs according to the manner in which labor is divided between the GPT and SPT sectors in terms of innovation. The growth effects of GPT in a general equilibrium framework were formally analyzed by E. Helpman and M. Trajtenberg. In their models, GPT requires complementary inputs before they can be applied in the production process.