Topic: Transforming Luxury to Necessity
Time: 10:00 PM-11:30PM, Oct. 16, 2025
Location: Room A1148, New Main Building
Guest: Prof. Shenzhe Jiang is a Tenured Associate Professor and Deputy Dean (Teaching and Research) at the Institute of New Structural Economics (INSE), Peking University. He obtained his Ph.D. from Texas A&M University in 2017. His research is in the field of Macroeconomics. He currently focuses on studies of dynamic contract, housing economics and government strategic behavior in economic growth.
Abstract:
Many economists believe that important products are initially invented as luxuries for the rich but eventually diffuse to become necessities for the poor. This paper is the first to document this process using comprehensive micro-level data and to examine how income inequality shapes firm innovation. We establish three facts: (i) poor consumers’ expenditure shares on products rise over time; (ii) firms serving richer consumers innovate more; and (iii) firm entry accompanies product diffusion. We develop a dynamic general equilibrium model with hierarchical consumption and endogenous firm dynamics to account for these patterns. The model replicates the empirical findings and shows that rising inequality distorts innovation, disproportionately discouraging firms targeting lower-income consumers. Quantifying the model with U.S. retail scanner data and patent records, we find that rising inequality accounts for more than half of the observed slowdown in per-capita GDP growth over the last five decades.
