The major distinctive feature of cultural goods is that consumers must learn how to consume them, implying that preferences should be modelled as intertemporally dependent. The canonical model in the literature uses a habit formation analogy. In this paper, we discuss in detail, though in the simplest setup, a consistent preference structure for that model. Then, we derive the implications for the dynamics of two aggregate equilibrium models, a fixed price model and a flexible price model. The learning-by-consuming behaviour is characterised by a preference structure displaying bounded adjacent complementarity in the demand for the cultural good. This implies that there will be short run complementarity between the stocks of culture and financial wealth and that the adjustment of the demand for cultural goods, or of their relative price, will have some inertia. In the exogenous price model, we find that increases in income will raise the long run demand for cultural goods while increases in the relative price will decrease it. In the endogenous price model, an increase in the supply of cultural goods will imply an initial undershooting of the price of cultural goods followed by an upward transition process. Our results seem to be consistent with the empirical results on the demand for cultural goods and seem to offer an explanation for the Baumol and Bowen paradox. Copyright Springer Science + Business Media, Inc. 2005cultural goods, dynamics of demand, dynamics of prices, intertemporally dependent preferences,

A negative or nonsignificant empirical correlation between aggregate R&D intensity and the economic growth rate is a well-known fact in the empirical growth literature, but scarcely addressed in the theoretical growth literature. This paper develops an endogenous-growth~model that explores the interrelation~between horizontal and vertical R&D under a lab-equipment specification that is consistent with that stylized fact. A key feature is that the growth rate is fully endogenous both on the intensive and on the extensive margin. Strong composition effects between horizontal and vertical R&D, along both transition and the balanced-growth path, then emerge as the main mechanism producing those results. This setting also allows us to obtain a relationship between economic growth and firm dynamics that is consistent with the empirical facts.

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JEL classification: C62 E32 O41Keywords: Two-sector model Endogenous growth Economy-wide externalities Local and global indeterminacy Povert traps a b s t r a c tWe consider a two-sector endogenous growth model where the productions of the final good and human capital require economy-wide external effects. Assuming constant returns to scale at the private and social levels, we show that local and global indeterminacy of equilibrium paths are compatible with any values for the elasticity of intertemporal substitution in consumption and any sign for the capital intensity difference across the two sectors. We also show that for any value of the elasticity of intertemporal substitution in consumption, poverty traps may occur when the final good sector is capital intensive in human capital.