Wendner, Ronald (2010): Will the Consumption Externalities' Effects in the Ramsey Model Please Stand Up?
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This paper investigates household decisions when individual utility depends on a consumption reference level. The desire to ``keep up with the Joneses'' represents one such example. The prior literature shows that, in a Ramsey model, consumption externalities have no impact on steady state behavior, once labor supply is exogenous. In contrast, this paper argues that --- once there is (exogenous) technological change --- consumption externalities always affect steady state behavior, even if labor supply is exogenous. The nature of the effects depends on the consumption externality's impact on a household's elasticity of marginal utility of consumption.
|Item Type:||MPRA Paper|
|Original Title:||Will the Consumption Externalities' Effects in the Ramsey Model Please Stand Up?|
|English Title:||Will the Consumption Externalities' Effects in the Ramsey Model Please Stand Up?|
|Keywords:||Consumption externality, keeping up with the Joneses, Ramsey model, intertemporal elasticity of substitution|
|Subjects:||O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models
D - Microeconomics > D9 - Intertemporal Choice > D91 - Intertemporal Household Choice ; Life Cycle Models and Saving
E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth
|Depositing User:||Ron Wendner|
|Date Deposited:||27. May 2010 01:04|
|Last Modified:||15. Feb 2013 18:26|
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