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Variety, Consumption and Growth

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  • Mauro Caminati

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Abstract

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.

Suggested Citation

  • Mauro Caminati, 2004. "Variety, Consumption and Growth," Department of Economics University of Siena 431, Department of Economics, University of Siena.
  • Handle: RePEc:usi:wpaper:431
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    File URL: http://repec.deps.unisi.it/quaderni/431.pdf
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    References listed on IDEAS

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    1. Mark Bils & Peter J. Klenow, 2001. "Quantifying Quality Growth," American Economic Review, American Economic Association, vol. 91(4), pages 1006-1030, September.
    2. Aoki, Masanao & Yoshikawa, Hiroshi, 2002. "Demand saturation-creation and economic growth," Journal of Economic Behavior & Organization, Elsevier, vol. 48(2), pages 127-154, June.
    3. Timothy F. Bresnahan & Robert J. Gordon, 1996. "The Economics of New Goods," NBER Books, National Bureau of Economic Research, Inc, number bres96-1, July.
    4. Richard N. Langlois & Metin M. Cosgel, 1996. "The Organization of Consumption," Working papers 1996-07, University of Connecticut, Department of Economics.
    5. Bianchi, Marina, 2002. "Novelty, preferences, and fashion: when goods are unsettling," Journal of Economic Behavior & Organization, Elsevier, vol. 47(1), pages 1-18, January.
    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 383-399, June.
    7. Mark Bils & Peter J. Klenow, 2001. "The Acceleration of Variety Growth," American Economic Review, American Economic Association, vol. 91(2), pages 274-280, May.
    8. 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.
    9. Richard N. Langlois, 2000. "Knowledge, Consumption, and Endogenous Growth," Working papers 2000-02, University of Connecticut, Department of Economics.
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    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives

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