Journal Article

Income Distribution and Demand-Induced Innovations

Reto Foellmi and Josef Zweimüller

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 73, issue 4, pages 941-960
Published in print October 2006 | ISSN: 0034-6527
Published online October 2006 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2006.00403.x
Income Distribution and Demand-Induced Innovations

More Like This

Show all results sharing these subjects:

  • Microeconomics
  • Economic Growth and Aggregate Productivity

GO

Show Summary Details

Preview

We introduce non-homothetic preferences into an innovation-based growth model and study how income and wealth inequality affect economic growth. We identify a (positive) price effect—where increasing inequality allows innovators to charge higher prices and (negative) market-size effects—with higher inequality implying smaller markets for new goods and/or a slower transition of new goods into mass markets. It turns out that price effects dominate market-size effects. We also show that a redistribution from the poor to the rich may be Pareto improving for low levels of inequality.

Keywords: D31; O41

Journal Article.  10707 words.  Illustrated.

Subjects: Microeconomics ; Economic Growth and Aggregate Productivity

Full text: subscription required

How to subscribe Recommend to my Librarian

Users without a subscription are not able to see the full content. Please, subscribe or login to access all content.