The macroeconomics of Model T

Reto Foellmi, Tobias Wuergler and Josef Zweimüller ()

Journal of Economic Theory, 2014, vol. 153, issue C, 617-647

Abstract: We study a model of growth and mass production. Firms undertake either product innovations that introduce new luxury goods for the rich; or process innovations that transform existing luxuries into mass products for the poor. A prototypical example for such a product cycle is the automobile. Initially, an exclusive product for the very rich, the automobile became affordable to the middle class after the introduction of Ford's Model T, “the car that put America on wheels”. We present a model of non-homothetic preferences, in which the rich consume a wide range of exclusive high-quality products and the poor a more narrow range of low-quality mass products. In this framework, inequality affects the composition of R&D through price and market size effects. The inequality–growth relationship depends on how mass production affects productivity; and on the particular dimension of inequality (income gaps versus income concentration). Our model is sufficiently tractable to incorporate learning-by-doing, oligopolistic market structures, and different sources of knowledge spillovers.

Keywords: Inequality; Technical change; Growth; Mass production; Product innovations; Process innovations (search for similar items in EconPapers)
JEL-codes: D30 D40 O15 O30 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022053114000283
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The Macroeconomics of Model T (2009)
Working Paper: The Macroeconomics of Model T (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:153:y:2014:i:c:p:617-647

DOI: 10.1016/j.jet.2014.03.002

Access Statistics for this article

Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell

More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Catherine Liu ().