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.