The Macroeconomics of Model T

Zweimüller, Josef, Reto Foellmi and Tobias Wuergler
Authors registered in the RePEc Author Service: Josef Zweimüller ()

No 7612, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study a model of endogenous growth where firms invest both in product and process innovations. Product innovations (that open up completely new product lines) satisfy the advanced wants of the rich. Subsequent process innovations (that decrease costs per unit of quality) transform the luxurious products of the rich into conveniences of 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 show that an egalitarian society creates strong incentives for process innovations (such as the Model T) whereas an unequal society creates strong incentives for product innovations (new luxuries). We show that the inequality-growth relationship depends on which type of innovative activity drives technical progress, analyzing both the characteristics of and the transition to the balanced growth path.

Keywords: Growth; Inequality; Mass production; Process innovations; Product innovations; Technical change (search for similar items in EconPapers)
JEL-codes: D30 D40 O15 O30 (search for similar items in EconPapers)
Date: 2009-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: The macroeconomics of Model T (2014)
Working Paper: The Macroeconomics of Model T (2009)
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