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Growth is associated with (i) shifts in the sectoral structure of the economy, (ii) changes in relative prices and (iii) the Kaldor facts. Moreover, (iv) cross-sectional data shows systematic differences in the expenditure structure. This paper presents a growth model which is consistent with (i)-(iv) at the same time, a result the existing literature has(More)
We introduce non-homothetic preferences into a general equilibrium model of monopo-listic competition and explore the impact of income inequality on the medium-run macroeconomic equilibrium. We find that (i) a sufficiently high extent of inequality divides the economy into mass consumption sectors (where firms charge low prices and hire many workers) and(More)
We explore the relationship between inequality and demand structure in an endogenous growth model where consumers expand consumption along a hierarchy of needs and desires. The consumption hierarchy is captured by non-homothetic preferences implying that the shape of the demand curves for various goods depends on the distribution of income. This setting(More)
We study a model of growth and mass production. Firms undertake either product innovations that introduce new luxury goods for the rich; or process innovations that transform existing luxuries into mass products for the poor. A prototypical example for such a product cycle is the automobile. Initially an exclusive product for the very rich, the automobile(More)
This paper studies pension design from a risk management point of view using a lexicographic loss aversion model. Interest in this model stems from the fact that it explains income expansion paths of equity and total savings particularly well. I find that all income groups are likely to benefit from a PAYGO system, even in the absence of any redistribution.(More)
This paper studies the Cass-Koopmans-Ramsey model of optimal economic growth in the presence of loss aversion and habit formation. The representative agent's preferences for consumption can be gradually varied between the standard constant intertemporal elasticity of substitution (CIES) case and Kahneman and Tversky's prospect utility. We find that the(More)