Comparison Utility in a Growth Model

Christopher Carroll (), Jody Robert Overland () and David Weil ()

No 6138, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper compares the dynamics of two general equilibrium models of endogenous growth in which agents have comparison utility.' In the inward-looking' economy, individuals care about how their consumption in the current period compares to their own consumption in the past (one way to describe this is habit-formation' in consumption). In the outward-looking' economy, individuals care about how their own level of consumption compares with others' consumption. Consider the effect of negative shock to capital. In an endogenous growth model with standard preferences, there will be no effect on the saving rate or the growth rate of output. In both of the models that we consider, however, saving and growth will temporarily fall in response to the shock. The initial decline in saving and growth will be larger in the inward-looking case. However, since agents in the outward-looking case do not take into account the externality effect of their consumption, higher growth in this case will lead to lower utility than in the inward-looking case.

JEL-codes: D91 E21 (search for similar items in EconPapers)
Date: Written
Note: ME
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Related works:
Working Paper: Comparison Utility in a Growth Model (1997)
Journal Article: Comparison Utility in a Growth Model (1997)
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