Habit Formation, Demand and Growth through product innovation

Garcia, Abraham (2009). Habit Formation, Demand and Growth through product innovation. UNU-MERIT.

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UNU-MERIT Working Papers

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  • Author Garcia, Abraham
    Title Habit Formation, Demand and Growth through product innovation
    Publication Date 2009
    Publisher UNU-MERIT
    Abstract Growth theory has mainly focused on process innovation, either through an increase in quality of the product or a reduction on the cost. The main contributions in growth theory that includes product innovation has been done in the Dixit and Stiglitz framework. This framework works with oversimplifying restrictions on the demand side: Preferences of consumers are assumed to be constant and equal for all goods. This paper introduces vertical and horizontal differentiation in final goods. Goods are different in their habit formation parameters. Innovation is not the normal reduction in costs but an increase in the capacity to satisfy consumers’ needs. Growth in this model is defined as the growth of the final value added.
    Keyword Growth
    Product innovation
    Technical change
    Consumption
    JEL O4
    E21
    D11
    O31
    M37
    Copyright Holder UNU-MERIT
    Copyright Year 2009
    ISSN 1871-9872
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    Created: Wed, 11 Dec 2013, 16:35:17 JST