Variety expansion, preference shocks, and financial intermediaries

Hiroaki Ohno and Kouki Sugawara ()
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Kouki Sugawara: Nagoya Gakuin University

Annals of Finance, 2016, vol. 12, issue 1, No 2, 17-28

Abstract: Abstract We investigate the effect of lifetime uncertainty on economic growth by incorporating preference shocks into a variety-expansion model and comparing financial autarky and financial intermediaries. In this economy, long-term investment facilitates the promotion of R&D investment and the creation of new differentiated goods. Our results suggest that when risk aversion is high, an increase in number of differentiated goods slows down R&D investment through a decrease in the price index. Further, if the risk of early withdrawal and the liquidation cost of long-term investment are high, financial intermediaries have significant effects on the growth of variety.

Keywords: Variety expansion; Long-term investment; Preference shock; Lifetime uncertainty; Endogenous growth (search for similar items in EconPapers)
JEL-codes: G11 G20 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/s10436-015-0270-4

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