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Income Distribution and Demand-induced Innovations

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  • Reto Foellmi
  • Josef Zweim�ller

Abstract

We utilize Schmookler�s (1966) concept of demand-induced invention to study the role of income inequality in an endogenous growth model. As rich consumers can satisfy more wants than poor consumers, both prices and market sizes for new products, as well as their evolution over time, are determined by the income distribution. We show how a change in the distribution of income affects the incentive to innovate and hence long-run growth. In general, less inequality tends to discourage the incentive to innovate, but this depends on the nature of the redistribution.

Suggested Citation

  • Reto Foellmi & Josef Zweim�ller, "undated". "Income Distribution and Demand-induced Innovations," IEW - Working Papers 212, Institute for Empirical Research in Economics - University of Zurich.
  • Handle: RePEc:zur:iewwpx:212
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    More about this item

    Keywords

    inequality; growth; demand composition; price distortion;

    JEL classification:

    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • D30 - Microeconomics - - Distribution - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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