Macroeconomic implications of conspicuous consumption: A Sombartian dynamic model

This paper presents a dynamic general equilibrium model in which consumers have status preference. I investigate the manner in which capital accumulation is impeded by conspicuous consumption i la Corneo and Jeanne [Corneo, G., Jeanne, O., 1997a. Conspicuous consumption, snobbism and conformism. Journal of Public Economics 66, 55-71]. Following the literature, social norms are given as either bandwagon type or snob type. I show that when the economy is characterized by a bandwagon type social norm, capital accumulation exhibits interesting patterns. Those patterns include, for example, an oscillating convergence path: the rise of the economy feeds its decay through conspicuous consumption and that decay suppresses conspicuous consumption and engenders prosperity, as predicted by Sombart [Sombart, W., 1912. Liebe, Luxus und Kapitalismus, Deutscher Taschenbuch Verlag, Germany (reprinted 1967)].

[1]  P. Frijters,et al.  Materialism on the March: From conspicuous leisure to conspicuous consumption? , 2008 .

[2]  J. Wagner,et al.  Veblen effects and their impact on the new European community and some of their trading partners , 1992 .

[3]  A. Hirschman.  Against Parsimony: Three Easy Ways of Complicating some Categories of Economic Discourse , 1984, Economics and Philosophy.

[4]  Oded Galor,et al.  Convergence ? : Inferences from Theoretical Models , 2017 .

[5]  J. Galí,et al.  Keeping Up with the Joneses: Consumption Externalities, Portfolio Choice, and Asset Prices , 1994 .

[6]  Thijs ten Raa,et al.  An Alternative Treatment of Secondary Products in Input-Output Analysis: Frustration , 1988 .

[7]  Kazuo Mino.  Consumption Externalities and Capital Accumulation in an Overlapping Generations Economy , 2006 .

[8]  David Hume.  A Treatise of Human Nature: Being an Attempt to introduce the experimental Method of Reasoning into Moral Subjects , 1972 .

[9]  H. Zou.  The spirit of capitalism and long-run growth , 1991 .

[10]  Harold L. Cole,et al.  Social Norms, Savings Behavior, and Growth , 1992, Journal of Political Economy.

[11]  Akihisa Shibata,et al.  Keeping One Step Ahead of the Joneses: Status, the Distribution of Wealth, and Long Run Growth , 1998 .

[12]  Measuring Preference Variation across North America , 1988 .

[13]  R. Easterlin.  Income and Happiness: Towards a Unified Theory , 2001 .

[14]  Andrew B. Abel,et al.  Asset Prices Under Habit Formation and Catching Up with the Joneses , 1990 .

[15]  Stephanie Schmitt-Grohé,et al.  Incomplete Cost Pass-Through Under Deep Habits , 2007 .

[16]  Gurdip Bakshi,et al.  The Spirit of Capitalism and Stock-Market Prices , 1996 .

[17]  A. Oswald,et al.  Satisfaction and comparison income , 1996 .

[18]  A. Banerjee,et al.  Occupational Choice and the Process of Development , 1993, Journal of Political Economy.

[19]  D. Slottje.  Is there conspicuous consumption in Japan , 1992 .

[20]  Kai A. Konrad.  Wealth seeking reconsidered , 1992 .

[21]  B. Douglas Bernheim,et al.  Veblen Effects in a Theory of Conspicuous Consumption , 1996 .

[22]  G. Becker,et al.  A Note on Restaurant Pricing and Other Examples of Social Influences on Price , 1991, Journal of Political Economy.

[23]  Kazuo Mino.  Growth and Bubbles with Consumption Externalities , 2007 .

[24]  Giacomo Corneo,et al.  Snobs, bandwagons, and the origin of social customs in consumer behavior , 1997 .

[25]  Harold L. Cole,et al.  Incorporating Concern for Relative Wealth Into Economic Models , 1995 .

[26]  Michael McBride,et al.  Relative-income effects on subjective well-being in the cross-section , 2001 .

[27]  Daniel J. Slottje,et al.  A Note on Measuring Veblen's Theory of Conspicuous Consumption , 1988 .

[28]  Giacomo Corneo,et al.  On relative wealth effects and the optimality of growth , 1997 .

[29]  V. Rao.  Poverty and Public Celebrations in Rural India , 2001 .

[30]  R. Frank.  The Demand for Unobservable and Other Nonpositional Goods , 1985 .

[31]  R. Mason.  The economics of conspicuous consumption : theory and thought since 1700 , 1998 .

[32]  A. Clark,et al.  Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles , 2007 .

[33]  John Y. Campbell,et al.  Measuring the Persistence of Expected Returns , 1990 .

[34]  Hiroaki Hayakawa.  Bounded Rationality, Social and Cultural Norms, and Interdependence via Reference Groups , 2000 .

[35]  Knud Haakonssen,et al.  Adam Smith: The Theory of Moral Sentiments , 2002 .

[36]  H. Holländer.  On the validity of utility statements: standard theory versus Duesenberry’s , 2001 .

[37]  Giacomo Corneo,et al.  Conspicuous consumption, snobbism and conformism , 1997 .

[38]  T. Veblen.  The Theory of the Leisure Class , 1901 .

[39]  K. Basu.  A THEORY OF ASSOCIATION: SOCIAL STATUS, PRICES AND MARKETS , 1989 .