Love of Novelty: A Source of Innovation-Based Growth. or Underdevelopment Traps?

This study develops a new innovation-based growth model to explore the role of people's love of novelty in innovation and innovation-based growth. The model considers (a) an infinitely lived representative consumer who has the standard love-of-variety preferences for differentiated products and extra love-of-novelty preferences for new products and (b) technological progress driven by two costly and time-consuming innovation activities, new product development and existing product development. We demonstrate that if the consumer's love-of-novelty preference is moderate, new and existing product development alternately occur on an equilibrium path, whereby the economy achieves innovation and long-run growth, through cycles. However, if the love of novelty is too strong or too weak, the economy is caught in an underdevelopment trap with less innovation and no long-run growth. Our results suggest that the love of novelty is a source of innovation-based growth, but can become a cause of underdevelopment traps if too strong.