Education, Income Distribution and Innovation
AbstractIn this paper we study the impact of the income distribution on innovation through the demand for quality goods. For simplicity, we assume that there are two types of consumers, rich and poor. The income distribution is measured by the population share of the poor and the relative income of the poor. Contrary to the literature, we assume that both are interdependent through education. The larger the income difference between the poor and the rich, the more individuals undergo education, because individuals can become rich through education. Quality goods are first invented, and then produced by oligopolists. Rich consumers have a higher willingness to pay for the better quality than the poor. Hence, the firms' profit depends on the income distribution of consumers. We focus on the separating equilibrium, where goods of different qualities are sold to different consumers. In this equilibrium, a lower relative income of the poor is good for innovation, and a larger population share of the poor is bad for innovation.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse11_2004.
Date of creation: Jun 2004
Date of revision:
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Find related papers by JEL classification:
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- I20 - Health, Education, and Welfare - - Education - - - General
- O12 - Economic Development, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
- O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-06-27 (All new papers)
- NEP-DEV-2004-06-27 (Development)
- NEP-EDU-2004-06-27 (Education)
- NEP-INO-2004-06-27 (Innovation)
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