A variety-expansion model of growth with external habit formation

Junko Doi and Kazuo Mino

Journal of Economic Dynamics and Control, 2008, vol. 32, issue 10, 3055-3083

Abstract: This paper introduces consumption externalities into one of the base line models of growth in which continuing expansion of product variety sustains long-term growth. We assume that consumers set a benchmark stock of consumption for each good so that there are commodity-specific external effects. Each good is produced by a monopolistically competitive firm and the firm exploits the presence of consumption external effects in determining its profit-maximizing price. Given those settings, we show that the introduction of consumption externalities may affect the balanced-growth characterization, transitional dynamics and policy effects in fundamental manners.

Date: 2008
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Working Paper: A Variety-Expansion Model of Growth with External Habit Formation (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:32:y:2008:i:10:p:3055-3083

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