Paper to be presented at the workshop on Escaping Satiation: Increasing Product Variety, Preference Change and the Demand Side of Economic Growth, Max Planck Institute for Research into Economic Systems, Jena, 11-13 December 1997.

By Esben Sloth Andersen
Dept. of Business Studies, Aalborg University, esa@business.auc.dk.

Abstract

This paper presents the problem of satiation in relation to a model of evolutionary endogenous growth. The model represents an attempt to provide an evolutionary economic micro foundation to PasinettiÕs scheme of the structural economic dynamics of a labour economy. Like this scheme the model deals with an economic system with a varying number of sectors, each of which is producing a consumption good. Consumers have a hierarchy of goods, and they first consume a higher-order good when they are fully provided with the lower-order goods. The goods are produced within consumer-producer firms which organise both production and consumption for their workers. Production takes place by means of labour and knowledge. Through innovative activities firms increase their productivity with respect to individual goods. The long-run consequence of this is that labour becomes available for the production of new consumption goods. If such goods are not provided to a sufficient degree, Òtechnological unemploymentÓ will emerge. If there is slow productivity development in the production of new goods, the overall rate of growth will slow down irrespectively of productivity growth in old sectors. Thus, to enhance long-term growth there is a need of Òanticipatory R&DÓ, i.e. R&D which produces designs for novel goods in the consumption hierarchy and increases productivity in the production of these goods. However, this is not necessarily done even in economies where we find wide-spread activities on product innovation and process innovation.

Keywords: Evolutionary modelling, endogenous growth and development, structural economic dynamics, satiation of demand, Robinson Crusoe.