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Variety expansion, preference shocks, and financial intermediaries

Author

Listed:
  • Hiroaki Ohno

    (Meiji Gakuin University)

  • Kouki Sugawara

    (Nagoya Gakuin University)

Abstract

We investigate the effect of lifetime uncertainty on economic growth by incorporating preference shocks into a variety-expansion model and comparing financial autarky and financial intermediaries. In this economy, long-term investment facilitates the promotion of R&D investment and the creation of new differentiated goods. Our results suggest that when risk aversion is high, an increase in number of differentiated goods slows down R&D investment through a decrease in the price index. Further, if the risk of early withdrawal and the liquidation cost of long-term investment are high, financial intermediaries have significant effects on the growth of variety.

Suggested Citation

  • Hiroaki Ohno & Kouki Sugawara, 2016. "Variety expansion, preference shocks, and financial intermediaries," Annals of Finance, Springer, vol. 12(1), pages 17-28, February.
    • Handle: RePEc:kap:annfin:v:12:y:2016:i:1:d:10.1007_s10436-015-0270-4
    DOI: 10.1007/s10436-015-0270-4
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    More about this item

    Keywords

    Variety expansion; Long-term investment; Preference shock; Lifetime uncertainty; Endogenous growth;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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