Conspicuous Consumption, Inconspicuous Leisure
Kenneth Arrow and
Economic Journal, 2009, vol. 119, issue 541, F497-F516
It is commonly argued that because relative consumption appears to matter to people, they must be involved in a 'rat race': people work harder and consume more than they would have were optimum public policies in place. But although consuming more today would improve one's relative consumption now, it would worsen one's relative consumption in the future. In this article we identify the structure of felicity functions for which the two effects offset each other exactly. The finding goes some way toward explaining why, while household surveys suggest that relative consumption matters, the consumption behaviour of households has not pointed unambiguously to the presence of relative consumption effects. Copyright © The Author(s). Journal compilation © Royal Economic Society 2009.
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