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Variety, Consumption and Growth

  • Mauro Caminati


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    This paper attempts at fixing some guide-posts on the relation between variety, consumption and growth, while abstracting from the well known effect that variety may exert on productivity, through specialization. A mechanism is first described, through which preference for variety expressed by intertemporally-optimizing consumers perfectly predicting the endogenously growing future consumption opportunities can cause faster steady-state growth. The mechanism amounts to a substitution of future for present consumption causing a higher steady-state savings ratio and is most naturally, but not exclusively, embedded in the intertemporal-equilibrium approach to growth modeling. The paper shows that this growth enhancing effect of preference for variety may not be unambiguous, if the creation of new goods is endogenous and costly. Some of the results obtained in this part of the paper hinge upon the assumption that there are constant returns to the endogenous factor, all factors are producible and that each type of variety can be used both as a consumption good and as a intermediate good in the production of capital by competitive firms. Dissatisfaction with the approach to preference for variety and innovation within the mechanism above is then motivated. The approach is oblivious of endogenous preference formation and the relation between innovation, consumption knowledge and consumption activities. Some research indications concerning long-term growth analysis in a world of endogenous preference formation are then drawn.

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    Paper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 431.

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    Date of creation: Jul 2004
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    Handle: RePEc:usi:wpaper:431
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    1. Richard N. Langlois & Metin M. Cosgel, 1996. "The Organization of Consumption," Working papers 1996-07, University of Connecticut, Department of Economics.
    2. Ulrich Witt, 2002. "Generic Features of Evolution and Its Continuity -- a Transdisciplinary Perspective," Papers on Economics and Evolution 2002-10, Philipps University Marburg, Department of Geography.
    3. Mark Bils & Peter J. Klenow, 2000. "Quantifying Quality Growth," NBER Working Papers 7695, National Bureau of Economic Research, Inc.
    4. Mark Bils & Peter J. Klenow, 2001. "The Acceleration of Variety Growth," American Economic Review, American Economic Association, vol. 91(2), pages 274-280, May.
    5. Aoki, Masanao & Yoshikawa, Hiroshi, 2002. "Demand saturation-creation and economic growth," Journal of Economic Behavior & Organization, Elsevier, vol. 48(2), pages 127-154, June.
    6. Ortigueira, Salvador & Santos, Manuel S, 1997. "On the Speed of Convergence in Endogenous Growth Models," American Economic Review, American Economic Association, vol. 87(3), pages 383-99, June.
    7. Timothy F. Bresnahan & Robert J. Gordon, 1996. "The Economics of New Goods," NBER Books, National Bureau of Economic Research, Inc, number bres96-1, December.
    8. Bianchi, Marina, 2002. "Novelty, preferences, and fashion: when goods are unsettling," Journal of Economic Behavior & Organization, Elsevier, vol. 47(1), pages 1-18, January.
    9. Richard N. Langlois, 2000. "Knowledge, Consumption, and Endogenous Growth," Working papers 2000-02, University of Connecticut, Department of Economics.
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