Capital accumulation when consumers are tempted by others’ consumption experience

Jaime Alonso-CarreraBy and Stéphane Bouché

Oxford Economic Papers, 2020, vol. 72, issue 3, 804-828

Abstract: We analyse how the influence of peer effects on self-control affects capital accumulation. We consider an overlapping generations model where individuals are tempted to take the economy-wide average consumption as an aspiration. Consumers exhibit a preference for self-control. They face a self-control problem, and observing each other’s consumption determines the individual’s capacity to deal with this problem. We show that temptation and self-control may either increase or decrease the accumulation of capital. The crucial point would be whether or not consumers take the consumption of the individuals belonging to the other living generations as a reference in forming their aspirations. This point also crucially determines the stability properties of the equilibrium paths.

JEL-codes: D91 E13 E21 (search for similar items in EconPapers)
Date: 2020
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