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Innovation and Growth with Rich and Poor Consumers

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  • Brunner, Johann K
  • Zweimüller, Josef

Abstract

This paper studies the impact of income inequality on the level of innovative activity in a model where innovations result in quality improvements. The market for quality goods is characterized by a natural oligopoly with two types of consumers – rich and poor. In general, we find that for reasons of strategic price setting a more equal distribution is favourable for innovation incentives. This is consistent with empirical evidence, suggesting that countries with a more equal distribution have grown faster.

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Bibliographic Info

Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1855.

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Date of creation: Apr 1998
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Handle: RePEc:cpr:ceprdp:1855

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Related research

Keywords: Growth; Inequality; Innovation; Product Quality;

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References

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  1. Ted O'Donoghue, Suzanne Scotchmer, and Jacques-Fran�ois Thisse., 1995. "Patent Breadth, Patent Life and the Pace of Technological Improvement," Economics Working Papers 95-242, University of California at Berkeley.
  2. GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "Entry (and exit) in a differentiated industry," CORE Discussion Papers RP -400, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Saint-Paul, G. & Verdier, T., 1991. "Education, Democracy and growth," DELTA Working Papers 91-27, DELTA (Ecole normale supérieure).
  4. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  5. Perotti, Roberto, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 755-76, October.
  6. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 35-52, January.
  7. GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "Price competition, quality and income disparities," CORE Discussion Papers RP -370, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Income Distribution, Market Size, and Industrialization," The Quarterly Journal of Economics, MIT Press, vol. 104(3), pages 537-64, August.
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Citations

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Cited by:
  1. Zweimuller, Josef, 2000. " Schumpeterian Entrepreneurs Meet Engel's Law: The Impact of Inequality on Innovation-Driven Growth," Journal of Economic Growth, Springer, vol. 5(2), pages 185-206, June.
  2. Foellmi, Reto & Zweimüller, Josef, 2005. "Income Distribution and Demand-Induced Innovations," CEPR Discussion Papers 4985, C.E.P.R. Discussion Papers.
  3. Shen, Ling, 2013. "How does wealth distribution affect firm's incentive to innovate better quality goods?," Economic Modelling, Elsevier, vol. 32(C), pages 516-523.
  4. Reto Foellmi und Josef Zweimüller, . "Inequality and Economic Growth - European Versus U.S. Experiences," IEW - Working Papers 158, Institute for Empirical Research in Economics - University of Zurich.
  5. Marasco, Antonio, 2005. "Testing Schumpeterian growth theory: the role of income inequality as a determinant of research and development expenditures (developed economies) and successful technology transfers (developing econo," MPRA Paper 4785, University Library of Munich, Germany.
  6. Vesna Stavrevska, 2011. "The efficiency wages perspective to wage rigidity in the open economy: a survey," International Journal of Manpower, Emerald Group Publishing, vol. 32(3), pages 273-299, July.
  7. Josef Zweimueller, . "Inequality, Redistribution, and Economic Growth," IEW - Working Papers 031, Institute for Empirical Research in Economics - University of Zurich.
  8. Marasco, Antonio, 2002. "An endogenous growth model with quality ladders and consumers’ heterogeneity," MPRA Paper 5389, University Library of Munich, Germany, revised Jan 2007.
  9. Soma Roy, 2011. "Income Distribution, Spillover Effects And Choice Of Product Quality," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 36(2), pages 61-86, June.
  10. Ling Shen, 2004. "Education, Income Distribution and Innovation," Bonn Econ Discussion Papers bgse11_2004, University of Bonn, Germany.

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