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More apples vs. better apples: Distribution and innovation-driven growth

Publication ,  Journal Article
Kane, RF; Peretto, PF
Published in: Journal of Economic Theory
January 1, 2020

We model distribution, the delivery of goods to customers, as an activity governed by its own technology and undertaken by firms subsequently to production. We then use the model to investigate how distribution shapes innovation-driven economic growth. We contrast two canonical specifications of distribution costs, iceberg vs. per-unit. The per-unit cost implies that factory-specific productivity improvements cannot sustain steady-state growth. Quality improvement, instead, raises the services that customers obtain from each unit of the good so that firms can increase the volume of services without increasing the volume of shipments. Unless technological advancements allow the distribution cost to fall to zero, quantity growth must cease and growth must be driven by quality improvement. More generally, the ratio of distribution to manufacturing unit costs must be constant in steady state. The iceberg cost delivers this property by assumption. The per-unit distribution cost, instead, yields an endogenous structure of the costs of serving the market.

Duke Scholars

Published In

Journal of Economic Theory

DOI

EISSN

1095-7235

ISSN

0022-0531

Publication Date

January 1, 2020

Volume

185

Related Subject Headings

  • Economic Theory
  • 3803 Economic theory
  • 3801 Applied economics
  • 1499 Other Economics
  • 1401 Economic Theory
 

Citation

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ICMJE
MLA
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Kane, R. F., & Peretto, P. F. (2020). More apples vs. better apples: Distribution and innovation-driven growth. Journal of Economic Theory, 185. https://doi.org/10.1016/j.jet.2019.104964
Kane, R. F., and P. F. Peretto. “More apples vs. better apples: Distribution and innovation-driven growth.” Journal of Economic Theory 185 (January 1, 2020). https://doi.org/10.1016/j.jet.2019.104964.
Kane RF, Peretto PF. More apples vs. better apples: Distribution and innovation-driven growth. Journal of Economic Theory. 2020 Jan 1;185.
Kane, R. F., and P. F. Peretto. “More apples vs. better apples: Distribution and innovation-driven growth.” Journal of Economic Theory, vol. 185, Jan. 2020. Scopus, doi:10.1016/j.jet.2019.104964.
Kane RF, Peretto PF. More apples vs. better apples: Distribution and innovation-driven growth. Journal of Economic Theory. 2020 Jan 1;185.
Journal cover image

Published In

Journal of Economic Theory

DOI

EISSN

1095-7235

ISSN

0022-0531

Publication Date

January 1, 2020

Volume

185

Related Subject Headings

  • Economic Theory
  • 3803 Economic theory
  • 3801 Applied economics
  • 1499 Other Economics
  • 1401 Economic Theory