Discounting and Relative Consumption

Olof Johansson-Stenman () and Thomas Sterner

RFF Working Paper Series from Resources for the Future

Abstract: This paper analyzes optimal social discount rates where people derive utility from relative consumption. We identify and compare three separate discount rates -- the social rate (taking positional externalities into account), the private rate, and the conventional Ramsey rate. Two main findings resulted for the standard case with a positive growth rate -- 1) the social discount rate exceeds the private discount rate if the degree of positionality increases with consumption, and 2) the social discount rate is smaller than the Ramsey rate if preferences are quasi-concave in own and reference consumption, and exhibit risk aversion with respect to reference consumption. Numerical calculations demonstrate that the latter difference may be substantial and economically important for such issues as global warming.

Keywords: discounting; relative consumption; Ramsey rule; degree of positionality; keeping up with the Joneses (search for similar items in EconPapers)
JEL-codes: D63 D90 H43 (search for similar items in EconPapers)
Date: 2011-08-15
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.rff.org/RFF/documents/RFF-DP-11-38.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.rff.org/RFF/documents/RFF-DP-11-38.pdf [301 Moved Permanently]--> https://www.rff.org/RFF/documents/RFF-DP-11-38.pdf)

Related works:
Journal Article: Discounting and relative consumption (2015)
Working Paper: Discounting and Relative Consumption (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rff:dpaper:dp-11-38

Access Statistics for this paper

More papers in RFF Working Paper Series from Resources for the Future Contact information at EDIRC.
Bibliographic data for series maintained by Resources for the Future ().