Innovation, Unemployment and Policy in the Theories of Growth and Distribution

Innovation, Unemployment and Policy in the Theories of Growth and Distribution

Edited by Neri Salvadori and Renato Balducci

Innovation, Unemployment and Policy in the Theories of Growth and Distribution increases our understanding about the more relevant economic determinants and policy aspects of the interdependence between economic growth and income distribution.

Chapter 3: Consumption variety and growth

Mauro Caminati

Subjects: economics and finance, economic psychology, history of economic thought, radical and feminist economics


* Mauro Caminati 3.1. INTRODUCTION This chapter seeks to clarify some channels through which the accumulation of variety may affect long-term growth, through its influence on consumption. In general, it is worth distinguishing between two different ways in which variety may affect the pattern of consumption. The first is consistent with the standard growth-model environment where preferences are exogenously given; the second requires the preliminary exploration of a relatively unknown model environment, which is capable of reconciling the focus on long-term growth with the notion of endogenous preferences. It may be argued that the growth of variety is consistent with the assumption of exogenous preferences provided that radically new goods respond to previously unmet, but still ‘objective’, needs. For the sake of interpretation, it is useful to think of consumption goods as inputs to the consumption–service production which is (implicitly) built into the instantaneous utility function featuring in growth models (see Becker, 1965; Lancaster, 1971). New goods convey new service characteristics, or at least a combination of previously unavailable characteristics. For instance, the creation of the internal combustion engine powered automobile offered a new mix of transportation services combining speed with flexibility of use in time and space and lack of animal waste. Such a vector of service characteristics could not be supplied by the competing land-transportation systems of the time based on trains and horses (see Bresnahan and Gordon, 1997). A similar case is offered by the first introduction of domestic refrigerators bringing to previously unimaginable levels the time...

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