Status-seeking and material affluence: evaluating the Hirsch hypothesis

Abstract When individuals hold a preference for high relative consumption, competition to achieve social status can lead to inefficiently high levels of production and consumption, contributing to natural resource depletion and environmental degradation. In the 1970s, Fred Hirsch argued that an increasing portion of expenditure is allocated to status-seeking as average income rises. This paper critiques this hypothesis from two points of view. First, we note examples from the historical and anthropological literatures suggesting that status-seeking is often important in societies with relatively low incomes. Second, we consider a set of analytical models that focus on the economic consequences of status-seeking. When social status is defined in terms of the algebraic difference between an individual's consumption of a status good and the average consumption level in society, Hirsch's hypothesis holds true, and growth in the level of productivity and output can lead to declines in human welfare. If, on the other hand, status is linked to the ratio of individual and average consumption, Hirsch's hypothesis is valid only if social status and non-status goods are poor substitutes. The paper also considers two cases in which social status is defined in terms of the amount of time people devote to status-oriented activities. Under this assumption, productivity growth leaves time use unchanged, though the value of time devoted to status signaling increases in proportion to total expenditure.