Status Effects and Negative Utility Growth

This paper explains the observed stagnation of "happiness" measures through a growth model in which agents care about conspicuous consumption. "Normal goods" confer direct utility, while "status goods" confer utility only at the expense of others. Firms can improve the quality of both goods through R&D. The Nash equilibrium of the consumer game results in the share of expenditure on status goods increasing with the number of times the status good has been improved. As the economy grows, resources for innovation are transferred entirely to status-good R&D. The resulting long-run rate of utility growth is negative.

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