LUXURY AND WEALTH

Shinsuke Ikeda

International Economic Review, 2006, vol. 47, issue 2, 495-526

Abstract: I develop a dynamic theory of luxury consumption, particularly emphasizing the causal effect that pursuit of luxury goods has on wealth accumulation. A quasi-luxury is defined as a good whose marginal rate of substitution is increasing in a utility index. Under certain conditions, it is indeed a luxury good. When current wealth holding falls short of (exceeds) long-run needs, luxury consumption is postponed more (less) easily than necessity consumption, due to a lower (higher) time preference for luxury and/or a higher intertemporal elasticity of substitution thereof. Preferences for quasi-luxuries lead to a higher steady-state value of wealth or capital. Copyright 2006 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Date: 2006
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