DP1888 Project Evaluation and Organizational Form

Author(s): Thomas Gehrig, Pierre Régibeau, Katharine Rockett
Publication Date: May 1998
Keyword(s): imperfect communication, Imperfect Information, organizational form
JEL(s): D23, D83, L22
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1888

This paper analyses the impact of inequality on growth when technical progress is driven by innovations. It is assumed that consumers have hierarchic preferences. As a result inequality affects demand and therefore the incentive to innovate. Whether more inequality is harmful or beneficial for growth depends on the initial distribution. Complementarities between a technical and a pecuniary externality resulting from the innovation process may generate multiple equilibria. Redistribution may push an economy trapped in underdevelopment to a high-growth regime.