Will the Consumption Externalities' Effects in the Ramsey Model Please Stand Up?
Ron Wendner ()
MPRA Paper from University Library of Munich, Germany
This paper investigates household decisions when individual utility depends on a consumption reference level. The desire to ``keep up with the Joneses'' represents one such example. The prior literature shows that, in a Ramsey model, consumption externalities have no impact on steady state behavior, once labor supply is exogenous. In contrast, this paper argues that --- once there is (exogenous) technological change --- consumption externalities always affect steady state behavior, even if labor supply is exogenous. The nature of the effects depends on the consumption externality's impact on a household's elasticity of marginal utility of consumption.
Keywords: Consumption externality; keeping up with the Joneses; Ramsey model; intertemporal elasticity of substitution (search for similar items in EconPapers)
JEL-codes: O41 D91 E21 (search for similar items in EconPapers)
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Journal Article: Will the consumption externalities' effects in the Ramsey model please stand up? (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:22905
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