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Innovation And Growth With Rich And Poor Consumers

  • Josef Zweimüller
  • Johann K. Brunner

This work studies the impact of income inequality on the level of innovative activities in a model where innovations result in quality improvements. In contrast to the standard model of innovations and growth, the equilibrium outcome may be characterized by a situation where not only the quality leader but also producers of worse qualities are on the market. In that case the quality leader sells to the rich, whereas the producer of the second-best quality sells to the poor. In general, we find that a more equal distribution of income is favourable for innovation incentives. This is consistent with empirical evidence suggesting that countries with a more equal distribution of income have grown faster. Copyright Blackwell Publishing Ltd 2005.

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Article provided by Wiley Blackwell in its journal Metroeconomica.

Volume (Year): 56 (2005)
Issue (Month): 2 (05)
Pages: 233-262

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Handle: RePEc:bla:metroe:v:56:y:2005:i:2:p:233-262
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  1. Jaskold Gabszewicz, J. & Thisse, J. -F., 1979. "Price competition, quality and income disparities," Journal of Economic Theory, Elsevier, vol. 20(3), pages 340-359, June.
  2. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  3. Saint-Paul, G. & Verdier, T., 1991. "Education, Democracy and growth," DELTA Working Papers 91-27, DELTA (Ecole normale supérieure).
  4. 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.
  5. Jaskold Gabszewicz, J. & Thisse, J. -F., 1980. "Entry (and exit) in a differentiated industry," Journal of Economic Theory, Elsevier, vol. 22(2), pages 327-338, April.
  6. 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.
  7. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
  8. Perotti, Roberto, 1993. "Political Equilibrium, Income Distribution, and Growth," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 755-76, October.
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