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Reference-Dependent Utility in an Industrial Cluster

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  • Olsson, Ola

    ()
    (Department of Economics, School of Economics and Commercial Law, Göteborg University)

Abstract

This article tries to explain the exceptional levels of knowledge creation in certain industrial clusters, levels that are seemingly higher than what is implied by the usual models of atomistic agents who do not internalize externalities. For this purpose, we introduce reference-dependent utility into an OLG model of an industrial cluster where agents allocate resources between consumption and knowledge investments and where the latter spills over to the rest of the cluster. It is shown that if the agents in the cluster have altruistic preferences, they will internalize the externalities from knowledge investments and create more knowledge than if they were atomistic or considered their neighbors to be rivals.

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File URL: http://hdl.handle.net/2077/2804
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Bibliographic Info

Paper provided by University of Gothenburg, Department of Economics in its series Working Papers in Economics with number 87.

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Length: 15 pages
Date of creation: 09 Jan 2003
Date of revision: 30 Jun 2003
Publication status: Forthcoming in Knowledge Spillover and Knowledge Management. , Karlsson, C., Flensburg, P., Hörte, S. (eds.), Lawrence Erlbaum.
Handle: RePEc:hhs:gunwpe:0087

Contact details of provider:
Postal: Department of Economics, School of Business, Economics and Law, University of Gothenburg, Box 640, SE 405 30 GÖTEBORG, Sweden
Phone: 031-773 10 00
Web page: http://www.handels.gu.se/econ/
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Keywords: industrial cluster; reference-dependent utility; knowledge spillovers; relative consumption;

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  1. Christopher D. Carroll & Jody Overland & David N. Weil, 1997. "Comparison Utility in a Growth Model," NBER Working Papers 6138, National Bureau of Economic Research, Inc.
  2. Matthew Rabin, 1998. "Psychology and Economics," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 11-46, March.
  3. Paul M Romer, 1999. "Increasing Returns and Long-Run Growth," Levine's Working Paper Archive 2232, David K. Levine.
  4. Edward L. Glaeser & David Laibson & Bruce Sacerdote, 2000. "The Economic Approach to Social Capital," NBER Working Papers 7728, National Bureau of Economic Research, Inc.
  5. Harbaugh, Richmond, 1996. "Falling behind the Joneses: relative consumption and the growth-savings paradox," Economics Letters, Elsevier, vol. 53(3), pages 297-304, December.
  6. Samuel Bowles, 1998. "Endogenous Preferences: The Cultural Consequences of Markets and Other Economic Institutions," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 75-111, March.
  7. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1039-61, November.
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