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Heterogeneous Consumers, Vertical Product Differentiation and the Rate of Innovation

  • Zweimueller, Josef

    (Department of Economics, Institute for Advanced Studies, Vienna)

  • Brunner, Johann K.

    (Department of Economics, University of Linz)

This paper studies the impact of income inequality on the level of innovative activities in a model where innovations result in quality improvements. The market for quality goods is characterized by a natural oligopoly with three types of consumers - rich, middle class and poor. In general, we find that for reasons of strategic price setting 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.

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Paper provided by Institute for Advanced Studies in its series Economics Series with number 32.

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Length: 19 pages
Date of creation: Jun 1996
Date of revision:
Handle: RePEc:ihs:ihsesp:32
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  1. Torvik, Ragnar, 1993. " Talent, Growth and Income Distribution," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 581-96, December.
  2. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-51, March.
  3. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
  4. O'DONOGHUE, Ted & SCOTCHMER, Suzanne & THISSE, Jacques-François, . "Patent breadth, patent life, and the pace of technological progress," CORE Discussion Papers RP 1314, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Saint-Paul, Gilles & Verdier, Thierry, 1993. "Education, democracy and growth," Journal of Development Economics, Elsevier, vol. 42(2), pages 399-407, December.
  6. Alesina, Alberto F & Rodrik, Dani, 1991. "Distributive Politics and Economic Growth," CEPR Discussion Papers 565, C.E.P.R. Discussion Papers.
  7. Clarke, George R. G., 1995. "More evidence on income distribution and growth," Journal of Development Economics, Elsevier, vol. 47(2), pages 403-427, August.
  8. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth Through Creative Destruction," Scholarly Articles 12490578, Harvard University Department of Economics.
  9. Kevin M. Murphy & Andrei Shleifer & Robert Vishny, 1989. "Income Distribution, Market Size, and Industrialization," The Quarterly Journal of Economics, Oxford University Press, vol. 104(3), pages 537-564.
  10. Shaked, Avner & Sutton, John, 1983. "Natural Oligopolies," Econometrica, Econometric Society, vol. 51(5), pages 1469-83, September.
  11. Banerjee, Abhijit V & Newman, Andrew F, 1993. "Occupational Choice and the Process of Development," Journal of Political Economy, University of Chicago Press, vol. 101(2), pages 274-98, April.
  12. Falkinger, Josef, 1994. "An Engelian model of growth and innovation with hierarchic consumer demand and unequal incomes," Ricerche Economiche, Elsevier, vol. 48(2), pages 123-139, June.
  13. 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.
  14. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
  15. repec:tpr:qjecon:v:109:y:1994:i:2:p:465-90 is not listed on IDEAS
  16. Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
  17. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
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