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A variety-expansion model of growth with external habit formation

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  • Doi, Junko
  • Mino, Kazuo

Abstract

This paper introduces consumption externalities into one of the base line models of growth in which continuing expansion of product variety sustains long-term growth. We assume that consumers set a benchmark stock of consumption for each good so that there are commodity-specific external effects. Each good is produced by a monopolistically competitive firm and the firm exploits the presence of consumption external effects in determining its profit-maximizing price. Given those settings, we show that the introduction of consumption externalities may affect the balanced-growth characterization, transitional dynamics and policy effects in fundamental manners.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 32 (2008)
Issue (Month): 10 (October)
Pages: 3055-3083

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Handle: RePEc:eee:dyncon:v:32:y:2008:i:10:p:3055-3083

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  1. Harbaugh, Richmond, 1996. "Falling behind the Joneses: relative consumption and the growth-savings paradox," Economics Letters, Elsevier, vol. 53(3), pages 297-304, December.
  2. Christopher D. Carroll & Jody Overland & David N. Weil, 1995. "Saving and growth with habit formation," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 95-42, Board of Governors of the Federal Reserve System (U.S.).
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  6. Jaime Alonso-Carrera & Jordi Caballe & Xavier Raurich, 2001. "Consumption Externalities, Habit Formation, and Equilibrium Efficiency," UFAE and IAE Working Papers 499.01, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
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  11. Enrichetta Ravina, 2005. "Keeping Up with the Joneses: Evidence from Micro Data," 2005 Meeting Papers 557, Society for Economic Dynamics.
  12. Kazuo Mino, 2007. "Growth and Bubbles with Consumption Externalities," Discussion Papers in Economics and Business 07-07, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  13. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  14. Ortigueira, Salvador & Santos, Manuel S, 1997. "On the Speed of Convergence in Endogenous Growth Models," American Economic Review, American Economic Association, vol. 87(3), pages 383-99, June.
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  16. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, vol. 93(1), pages 423-428, March.
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Cited by:
  1. Been-Lon Chen & Yu-Shan Hsu & Kazuo Mino, 2013. "Can consumption habit spillovers be a source of equilibrium indeterminacy?," Journal of Economics, Springer, vol. 109(3), pages 245-269, July.
  2. Been-lon Chen & Yu-shan Hsu, 2009. "Is admiration a source of indeterminacy when the speed of habit formation is finite?," Economics Bulletin, AccessEcon, vol. 29(4), pages 3041-3049.

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