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Conspicuous consumption in the land of Prince Charming

Perez Truglia, Ricardo Nicolas (2007): Conspicuous consumption in the land of Prince Charming.

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Abstract

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.

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