This paper considers an overlapping generations growth model in which “culture” is viewed as a public input in the production process of the labor efficiency units of future generations. Given the low appropriability of its beneficial effects, the market value of culture will be due to bubbles. I shall characterize the balanced growth paths associated with stationary rational bubbles on culture. Indeterminacy arises in the transition dynamics.

In the 1980s and 1990s, the U.S. labor market experienced a remarkable polarization along with fast technological catch-up as Europe and Japan improved their global innovation performance. Is foreign technological convergence an important source of wage polarization? To answer this question, we build a multicountry Schumpeterian growth model with heterogeneous workers, endogenous skill formation, and occupational choice. We show that convergence produces polarization through business stealing and increasing competition in global innovation races. Quantitative analysis shows that these channels can be important sources of U.S. polarization. Moreover, the model delivers predictions on the U.S. wealth-income ratio consistent with empirical evidence.

This paper responds to the comment of Di Tella and Dubra (2013). We first clarify that the model of Alesina and Angeletos (2005) admits two distinct types of multiplicity: one that is at the core of their contribution, and a separate one that is at work in Di Tella and Dubra's example. We then proceed to show how Alesina and Angeletos's results are robust to alternative specifications of the voting mechanism.