Working Paper: CEPR ID: DP1855
Authors: Josef Zweimuller; Johann K Brunner
Abstract: This paper studies the impact of income inequality on the level of innovative activity in a model where innovations result in quality improvements. The market for quality goods is characterized by a natural oligopoly with two types of consumers ? rich and poor. In general, we find that for reasons of strategic price setting a more equal distribution is favourable for innovation incentives. This is consistent with empirical evidence, suggesting that countries with a more equal distribution have grown faster.
Keywords: innovation; growth; inequality; product quality
JEL Codes: H23; O14; O15; O31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Income inequality (D31) | innovation incentives (O31) |
| More equal income distribution (D31) | innovation incentives (O31) |
| Pooling equilibrium (C62) | innovation incentives (O31) |
| Separating equilibrium (D59) | innovation incentives (O31) |
| Income inequality (D31) | market structure (D49) |
| market structure (D49) | innovation incentives (O31) |
| Strategic price setting (L11) | innovation incentives (O31) |