Discussion paper

DP1888 Project Evaluation and Organizational Form

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.

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Citation

Gehrig, T, P Régibeau and K Rockett (1998), ‘DP1888 Project Evaluation and Organizational Form‘, CEPR Discussion Paper No. 1888. CEPR Press, Paris & London. https://cepr.org/publications/dp1888