Income Distribution and Demand-Induced Innovations

Reto Foellmi () and Josef Zweimüller ()

No 4985, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We utilize Schmookler’s (1966) concept of demand-induced invention to study the role of income inequality in an endogenous growth model. As rich consumers can satisfy more wants than poor consumers, both prices and market sizes for new products, as well as their evolution over time, are determined by the income distribution. We show how a change in the distribution of income affects the incentive to innovate and hence long-run growth. In general, less inequality tends to discourage the incentive to innovate, but this depends on the nature of the redistribution.

Keywords: demand composition; growth; inequality; price distortion (search for similar items in EconPapers)
JEL-codes: D30 D40 L16 O15 O31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ino
Date: 2005-04
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Working Paper: Income Distribution and Demand-induced Innovations
Journal Article: Income Distribution and Demand-Induced Innovations (2006)
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