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Habit Formation, Demand and Growth through Product Innovation

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Author Info
Garcia-Torres, M. Abraham () (UNU-MERIT)

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Abstract

Growth theory has mainly focused on process innovation, either through an increase in quality of the product or a reduction on the cost. The main contributions in growth theory that includes product innovation has been done in the Dixit and Stiglitz framework. This framework works with oversimplifying restrictions on the demand side: Preferences of consumers are assumed to be constant and equal for all goods. This paper introduces vertical and horizontal differentiation in final goods. Goods are different in their habit formation parameters. Innovation is not the normal reduction in costs but an increase in the capacity to satisfy consumers’ needs. Growth in this model is defined as the growth of the final value added.

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Publisher Info
Paper provided by United Nations University, Maastricht Economic and social Research and training centre on Innovation and Technology in its series UNU-MERIT Working Paper Series with number 012.

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Date of creation: 2009
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Handle: RePEc:dgr:unumer:2009012

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Related research
Keywords: growth; product innovation; technical change; consumption;

Find related papers by JEL classification:
O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising

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This page was last updated on 2009-12-3.

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