Dynamic monopolistic competition: How mature innovations can contribute to variety
A dynamic model of monopolistic competition with two-step investment - innovation and production - is developed. It is shown that certain combinations of productivity growth, scale economies and taste for variation can lead to gains from letting innovations mature. Typically, it is optimal to postpone production investments when production is expensive relative to innovation, when the taste for variation is high, and when consumers are patient. The model is analogous to the Spence-Dixit-Stiglitz model, and it opens up for new interpretations of well-known static models. This paper restricts to a brief discussion on implications for international trade and economic growth. We find that small countries can lag behind large countries in terms of consumption when it takes time to transfer technology, and that economic growth can be induced by taste for variation when there are knowledge spillovers from innovation.
Publisert i 2001
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