DP1855 Innovation and Growth with Rich and Poor Consumers
|Author(s):||Johann K Brunner, Josef Zweimüller|
|Publication Date:||April 1998|
|Keyword(s):||Growth, Inequality, Innovation, Product Quality|
|JEL(s):||H23, O14, O15, O31|
|Programme Areas:||Human Resources|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=1855|
This paper studies the impact of income inequality on the level of innovative activity in a model where innovations result in quality improvements. The market for quality goods is characterized by a natural oligopoly with two types of consumers ? rich and poor. In general, we find that for reasons of strategic price setting a more equal distribution is favourable for innovation incentives. This is consistent with empirical evidence, suggesting that countries with a more equal distribution have grown faster.