Beyond the Arrow effect: income distribution and multi-quality firms in a Schumpeterian framework
This paper introduces multi-quality firms within a Schumpeterian framework. Featuring non-homothetic preferences and income disparities in an otherwise standard quality-ladder model, I indeed show that the resulting differences in the willingness to pay for quality among consumers generate both positive investments in R&D by industry leaders and positive market shares for more than one quality, hence allowing for the emergence of multi-product firms within a vertical innovation framework. This positive investment in R&D by incumbents is obtained with complete equal treatment in the R&D field between the incumbent patentholder and the challengers: in our framework, the incentive for a leader to invest in R&D stems from the possibility for an incumbent having innovated twice in a row to efficiently discriminate between rich and poor consumers displaying differences in their willingness to pay for quality. I hence exemplify a so far overlooked demand-driven rationale for innovation by incumbents. I am then also able to analyze the impact of inequality both on long-term growth and on the allocation of R&D activities between challengers and incumbents. I find that redistributive policies generally lead to an increase in the long-run growth rate, and to variations in the share of the overall R&D expenditures being undertaken by incumbents.
|Date of creation:||19 Feb 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Fax: +32 10473945
Web page: http://www.uclouvain.be/ires
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Josef Zweimueller, .
"Schumpeterian Entrepreneurs Meet Engel's Law: The Impact of Inequality on Innovation-Driven Growth,"
IEW - Working Papers
009, Institute for Empirical Research in Economics - University of Zurich.
- 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.
- Zweimüller, Josef, 1998. "Schumpeterian Entrepreneurs Meet Engel's Law: The Impact of Inequality on Innovation-Driven Growth," CEPR Discussion Papers 1880, C.E.P.R. Discussion Papers.
- Segerstrom, Paul S., 1999.
Working Paper Series
524, Research Institute of Industrial Economics.
- Robert J. Barro & Xavier Sala-i-Martin, 2003. "Economic Growth, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262025531, June.
- Eckel, Carsten & Neary, J. P., 2010.
"Multi-product firms and flexible manufacturing in the global economy,"
Munich Reprints in Economics
20525, University of Munich, Department of Economics.
- Carsten Eckel & J. Peter Neary, 2010. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Review of Economic Studies, Oxford University Press, vol. 77(1), pages 188-217.
- Eckel, Carsten & Neary, J Peter, 2006. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," CEPR Discussion Papers 5941, C.E.P.R. Discussion Papers.
- Carsten Eckel & J Peter Neary, 2006. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Working Papers 200608, School Of Economics, University College Dublin.
- Peter Neary & Carsten Eckel, 2006. "Multi-Product Firms and Flexible Manufacturing in the Global Economy," Economics Series Working Papers 292, University of Oxford, Department of Economics.
- Foellmi, Reto & Zweimüller, Josef, 2005.
"Income Distribution and Demand-Induced Innovations,"
CEPR Discussion Papers
4985, C.E.P.R. Discussion Papers.
- Reto Foellmi & Josef Zweimüller, . "Income Distribution and Demand-induced Innovations," IEW - Working Papers 212, Institute for Empirical Research in Economics - University of Zurich.
- Pablo D. Fajgelbaum, 2011. "Income Distribution, Product Quality and International Trade," 2011 Meeting Papers 415, Society for Economic Dynamics.
- Pablo Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2011.
"Income Distribution, Product Quality, and International Trade,"
Journal of Political Economy,
University of Chicago Press, vol. 119(4), pages 721 - 765.
- Fajgelbaum, Pablo & Grossman, Gene M. & Helpman, Elhanan, 2011. "Income distribution, product quality, and international trade," Policy Research Working Paper Series 5843, The World Bank.
- Pablo D. Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2009. "Income Distribution, Product Quality, and International Trade," NBER Working Papers 15329, National Bureau of Economic Research, Inc.
- Cozzi Guido, 2007. "The Arrow Effect under Competitive R&D," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-20, January.
- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
- Minniti, Antonio, 2006.
"Multi-Product Firms, R&D, and Growth,"
2097, University Library of Munich, Germany.
- Vincenzo Denicolò & Piercarlo Zanchettin, 2010.
2010.35, Fondazione Eni Enrico Mattei.
- Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
- Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626 National Bureau of Economic Research, Inc.
- Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
- Federico Etro, 2004. "Innovation by leaders," Economic Journal, Royal Economic Society, vol. 114(495), pages 281-303, 04.
When requesting a correction, please mention this item's handle: RePEc:ctl:louvir:2013004. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anne DAVISTER-LOGIST)
If references are entirely missing, you can add them using this form.