Perez Truglia, Ricardo Nicolas (2007): Conspicuous consumption in the land of Prince Charming.
This is the latest version of this item.
Download (672kB) | Preview
People incur in conspicuous consumption as a way to get non-market goods (i.e. goods that cannot be traded in markets). In sharp contrast to the existing literature, in our model people do not want to signal wealth but some unobservable traits that, conditional on other observable information, are correlated with wealth. For instance, people work hard and buy conspicuous goods in order to signal personal traits like talent, trustworthiness and creativity, and then get non-markets goods like respect, admiration, authority, relationships, etc. Both the nature of the equilibrium and the policy implications depart dramatically from the rest of the literature. We provide an application to optimal income taxation. Finally, our model offers many explanations beyond the current reach of the literature.
|Item Type:||MPRA Paper|
|Institution:||Universidad de San Andrés|
|Original Title:||Conspicuous consumption in the land of Prince Charming|
|Keywords:||Conspicuous consumption; signaling; non-market goods; income inequality; optimal taxation; risk aversion.|
|Subjects:||H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H21 - Efficiency; Optimal Taxation
D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions
D - Microeconomics > D6 - Welfare Economics > D61 - Allocative Efficiency; Cost-Benefit Analysis
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search; Learning; Information and Knowledge; Communication; Belief
D - Microeconomics > D4 - Market Structure and Pricing > D49 - Other
P - Economic Systems > P1 - Capitalist Systems > P16 - Political Economy
|Depositing User:||Ricardo Perez Truglia|
|Date Deposited:||25. May 2010 01:08|
|Last Modified:||16. Feb 2013 06:59|
Aguiar, Mark and Hurst, Erik (2007), "Measuring Trends in Leisure: The Allocation of Time over Five Decades," The Quarterly Journal of Economics, Vol. 122 (3), pp. 969-1006.
Akerlof, G. A. (1997), "Social Distance and Social Decision," Econometrica, Vol. 65, pp. 1005-1027.
Alesina, A. and Angeletos, G.M. (2005), "Fairness and Redistribution," The American Economic Review, Vol. 95 (4), pp. 960-980.
Bagwell, Laurie Simon and Bernheim, B. Douglas (1996), "Veblen Effects in a Theory of Conspicuous Consumption," American Economic Review, Vol. 86, pp. 349-73.
Becker, Gary S.; Murphy, Kevin M. and Werning, Ivan (2005), "The Equilibrium Distribution of Income and the Market for Status," Journal of Political Economy, Vol. 113 (2), pp. 282-310.
Becker, Gary S. and Murphy, Kevin M. (2000), "Social Economics: Market Behavior in a Social Environment." Cambridge: Harvard University Press.
Becchetti, Leonardo; Pelloni, Alessandra and Rossetti, Fiammetta (2008), "Sociability, relational goods and happiness," Kyklos, Vol. 61 (3), pp. 343-363.
Bloch, Francis; Rao, Vijayendra and Desai, Sonalde (2004), "Wedding Celebrations as Conspicuous Consumption," Journal of Human Resources, Vol. 39 (3), pp. 675-695.
Borges, Jorge Luis (1998), "Collected Fictions." Translation by Andrew Hurley. New York: Penguin Putnam. [The Lottery in Babylon, pp. 101-106]
Boskin, Michael and Sheshinski, E. (1978), "Optimal Redistributive Taxation and When Individual Welfare Depends on Relative Income," Quarterly Journal of Economics, Vol. 92, pp. 589-601.
Boudon, R. (1973), "Line´galite´des Chances." Paris: Armand Colin.
Brennan, G. and Pettit, P. (2004), "The Economy of Esteem." Oxford: Oxford University Press.
Campbell, Angus (1981), "The Sense of Well-Being in America." New York: McGraw-Hill.
Carlsson, Fredrik; Martinsson, Peter and Johansson-Stenman, Olof (2003), "Do You Enjoy Having More Than Others? Survey Evidence of Positional Goods," Göteborg University, Working Paper No. 100.
Charles, Kerwin Kofi; Hurst, Erik and Roussanov, Nikolai L. (2007), "Conspicuous consumption and race," NBER Working Paper No. W13392.
Chetty, Raj and Szeidl, Adam (2007), "Consumption Commitments and Risk Preferences," Quarterly Journal of Economics, Vol. 122 (2), pp. 831-877.
Cho, I.K. and Kreps, D.M. (1987), "Signaling Games and Stable Equilibria," Quarterly Journal of Economics, Vol. 52, pp. 179-221.
Clark, A.; Masclet, D. and Villeval, M.C. (2007), "Effort and Comparison Income: Experimental and Survey Evidence," Mimeo.
Cole, Harold; Mailath, George J. and Postlewaite, Andrew (1992), "Social Norms, Savings Behavior, and Growth," Journal of Political Economy, Vol. 100 (6), pp. 1092- 125.
Cole, Harold; Mailath, George J. and Postlewaite, Andrew (1995), "Incorporating Concern for Relative Wealth Into Economic Models," Federal Reserve Bank of Minneapolis Quarterly Review, Vol. 19 (3), pp. 12--21.
Coleman, James S. (1990), "Foundations of Social Theory." Cambridge: Harvard University Press.
Corneo, G. and Jeanne, O. (1998), "Social Organization, Status and Saving Behavior," Journal of Public Economics, Vol. 70, pp. 37-51.
Cowen, Tyler (2007), "Discover your inner economist." New York: Penguin Group.
Di Tella, R. and MacCulloch, R. (2009), "Why Doesn't Capitalism Flow to Poor Countries?" Brookings Papers on Economic Activity, Vol. 1, pp. 285-321.
Duesenberry, James S. (1949), "Income, saving and the theory of consumer behavior." Cambridge: Harvard University Press.
Frank, R. H. (1985), "The Demand for Unobservable and Other Positional Goods," American Economic Review, Vol. 75, pp. 101-116.
Frank, Robert H. (1999), "Luxury fever: why money fails to satisfy in an era of excess." New York: Free Press.
Frey, Bruno (1997), "Not Just for the Money: An Economic Theory of Personal Motivation." Cheltenhem: Edward Elgar.
Friedman, Milton (1953), "Choice, Chance and the Personal Distribution of Income," Journal of Political Economy, Vol. 61 (4), pp. 277-290.
Friedman, M. and Savage, L.J. (1948), "The Utility Analysis of Choices Involving Risk," The Journal of Political Economy, Vol. 56 (4), pp. 279-304.
Galbraith, J.K. (1958), "The Affluent Society." Boston: Houghton Mifflin.
Glazer, Amihai and Konrad, Kai A. (1996), "A Signaling Explanation for Charity," The American Economic Review, Vol. 86 (4), pp. 1019-28.
Gregory, Nathaniel (1980), "Relative wealth and risk taking: A short note on the Friedman-Savage utility function," Journal of Political Economy, Vol. 88 (6) pp.1226-30.
Grossman, S. and Perry, M. (1986), "Perfect Sequential Equilibrium," Journal of Economic Theory, Vol. 39, pp. 97-119.
Hamilton, Barton H. (2000), "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment." Journal of Political Economy, Vol. 108 (3), pp. 604-631.
Heffetz, Ori (2007), "Conspicuous Consumption and Expenditure Visibility: Measurement and Application," Working paper, Cornell University.
Hirsch, F. (1976), "The Social Limits to Growth." Cambridge: Harvard University Press.
Hopkins, Ed (2008), "Inequality, Happiness and Relative Concerns: What Actually is their Relationship?" Journal of Economic Inequality, Vol. 6, pp. 351--372.
Hopkins, Ed and Kornienko, Tatiana (2004), "Running to Keep in the Same Place: Consumer Choice as a Game of Status," The American Economic Review, Vol. 94 (4), pp. 1085-1107.
Ireland, N. (1994), "On Limiting the Market for Status Signals," Journal of Public Economics, Vol. 53, pp. 91-110.
Ireland, N. (1998), "Status Seeking, Income Taxation and Efficiency," Journal of Public Economics, Vol. 70, pp. 99-113.
Keynes, John M. (1936), "The General Theory of Employment, Interest and Money." MacMillan: London.
Kindleberger, Charles P. (1978), "Manias, Panics, and Crashes: A History of Financial Crises." New York: Basic Books.
Loewenstein, George (1999), "Because It Is There: The Challenge of Mountaineering… for Utility Theory," Kyklos, Vol. 52 (3), pp. 315-43.
Lukes, S. (1973), "Individualism." Oxford: Blackwell Publishing.
Ng, Yew-Kwang (1987), "Diamonds Are a Government's Best Friend: Burden-Free Taxes on Goods Valued for Their Values," The American Economic Review, Vol. 77 (1), pp. 186-191.
MacKay, Charles (1980), "Extraordinary Popular Delusions and the Madness of Crowds." New York: Harmony Books.
Mailath, G. J.; Okuno-Fujiwara, M. and Postlewaite, A. (1993), "Belief-based Refinements in Signalling Games," Journal of Economic Theory, Vol. 60, pp. 241-276.
Marshall, A. (1890), "Principles of Economics." London: Macmillan.
Mason, R. (1999), "The Economics of Conspictious Consumption: Theory and Thought since 1700." Cheltenham: Edward Elgar.
Meltzer, A. H. and Richard, S. (1981), "A Rational Theory of the Size of Government," Journal of Political Economy, Vol. 89 (5), pp. 914-27.
Merton, R. (1953), "Reference group theory and social mobility," in Bendix, R. and Lipset, S.M., Eds., "Class, Status and Power." New York: Free Press.
Moskowitz, Tobias J. and Vissing-Jorgensen, Annette. "The Returns to Entrepreneurial Investment: A Private Equity Premium Puzzle?" American Economic Review, 2002, 92(4), pp. 745-778.
Munger, K. and Harris, S. J. (1989), "Effects of an Observer on Handwashing in a Public Restroom," Perceptual and Motor Skills, Vol. 69, pp. 733--734.
Pareto, Vilfredo (1894) "Cours d'économie politique professé à l'Université de Lausanne." Pichon: F. Rouge.
Perez Truglia, Ricardo Nicolas (2005), "Cola de raton o cabeza de leon?" Licentiate Thesis, Universidad de San Andres.
Perez Truglia, Ricardo Nicolas (2006), "Can a Rise in Income Inequality Improve Welfare?" Master Thesis, Universidad de San Andres.
Perez Truglia, Ricardo Nicolas (2010), "Conspicuous consumption and the equilibrium distribution of income." Working Paper, Harvard University.
Pigou, A. C. (1903), "Some Remarks on Utility," The Economic Journal, Vol. 13, pp. 58-68.
Piketty, T. (1995), "Social Mobility and Redistributive Politics," The Quarterly Journal of Economics, Vol. 110 (3), pp. 551-584.
Piketty, T. (1998), "Self-fulfilling beliefs about social status," Journal of Public Economics, Vol. 70, pp. 115-132.
Pollack, R.A. (1976), "Interdependent Preferences," American Economic Review, Vol. 66 (4), pp. 709-720.
Postlewaite, Andrew (1998), "The Social Basis of Interdependent Preferences," European Economic Review, Vol. 42 (3-5), pp. 779-800.
Rand, Ayn (1957), "Atlas Shrugged." New York: Random House.
Rege, Mari (2007), "Why do People Care about Social Status?" Journal of Economic Behavior and Organization, forthcoming.
Riley, J, (1979), "Informational equilibrium," Econometrica, Vol. 47, pp. 331-359.
Robson, Arthur J. (1992), "Status, the distribution of wealth, private and social attitudes to risk," Econometrica, Vol. 60 (4), pp.837-57.
Rosen, Sherwin (1997), "Manufactured inequality," Journal of Labor Economics, Vol. 15 (2), pp. 186-196.
Rosenberg, Morris (1957), "Occupations and Values." Glencoe, III: Free Press.
Roth, Alvin E. (2007), "Repugnance as a Constraint on Markets," Journal of Economic Perspectives, Vol. 21 (3), pp. 37-58.
Smith, Adam (1759), "The Theory of Moral Sentiments." D.D. Raphael and A. L. Macfie, Eds. Indianapolis: Liberty Fund, 1981.
Smith, A. (1776), "The Wealth of Nations." Reprinted, New-York: Modern Library, 1937.
Solnick, Sarah J. and Hemenway, David (1998), "Is More Always Better?: A Survey on Positional Concerns," Journal of Economic Behavior and Organization, Vol. 37 (3), pp. 373-83.
Speights, David and Hilinski, Mark (2005), "Return Fraud and Abuse: How to Protect Profits," Retailing Issues Letter, Vol. 17 (1), pp. 1-6.
Spence, Michael (1973), "Job Market Signaling," Quarterly Journal of Economics, Vol. 87, pp. 296-332.
Scitovsky, Thomas (1976), "The joyless economy." New York: Oxford University Press.
Tangney, J.P. (2002), "Self-Relevant Emotions," in Handbook of Self and Identity, M.R. Leary, J.P. Tangney and G. MacDonald Eds. New York: Guilford Press.
Veblen, Thorstein (1899), "The theory of the leisure class." New York: Macmillan.
Weber, M., (1922), "Economy and Society." Tranlated and reprinted, Berkeley: University of California Press, 1978.
Zahavi, Amotz (1975), "Mate Selection: A Selection for Handicap," Journal of Theoretical Biology, Vol. 53, pp. 205-14.
Available Versions of this Item
Conspicuous consumption in the land of Prince Charming. (deposited 13. Apr 2010 02:07)
- Conspicuous consumption in the land of Prince Charming. (deposited 25. May 2010 01:08) [Currently Displayed]