Innovation and Growth with Rich and Poor Consumers

Johann Brunner () and Josef Zweimüller ()

No 1855, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: 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.

Keywords: Growth; Inequality; Innovation; Product Quality (search for similar items in EconPapers)
JEL-codes: H23 O14 O15 O31 (search for similar items in EconPapers)
Date: 1998-04
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Journal Article: INNOVATION AND GROWTH WITH RICH AND POOR CONSUMERS (2005)
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