Working Paper: CEPR ID: DP1888
Authors: Thomas Gehrig; Pierre Regibeau; Kate Rockett
Abstract: This paper analyses the impact of inequality on growth when technical progress is driven by innovations. It is assumed that consumers have hierarchic preferences. As a result inequality affects demand and therefore the incentive to innovate. Whether more inequality is harmful or beneficial for growth depends on the initial distribution. Complementarities between a technical and a pecuniary externality resulting from the innovation process may generate multiple equilibria. Redistribution may push an economy trapped in underdevelopment to a high-growth regime.
Keywords: imperfect information; imperfect communication; organizational form
JEL Codes: D23; D83; L22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| curvature of screening functions of individual evaluation units (C29) | relative merit of polyarchical organizations over hierarchical ones (D73) |
| decision thresholds are fully endogenous (D79) | preference for asymmetric decision rules (D81) |
| asymmetric decision rules (D81) | cost efficiency of project evaluations (H43) |
| cost curves of both organizational forms intersect (D20) | choice of organizational form is contingent on external market conditions and lumpiness of R&D costs (L22) |
| organizational form influences project success probabilities (L22) | polyarchies are more flexible and efficient in certain contexts (D72) |
| low success probabilities (D80) | hierarchies minimize costs more effectively (D20) |