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Title:The Macroeconomics of Model T PDF Logo
Authors:Föllmi, Reto
Wuergler, Tobias
Zweimüller, Josef
Issue Date:2010
Series/Report no.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie - Session: Technology and Growth B1-V1
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.
Subjects:inequality
technical change
growth
mass production
product innovations
process innovations
JEL:O30
O15
D30
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2010: Ökonomie der Familie

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