Conspicuous Consumption, Inconspicuous Leisure

Authors: Arrow, Kenneth J.¹; Dasgupta, Partha S.²

Source: The Economic Journal, Volume 119, Number 541, November 2009 , pp. F497-F516(20)

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Abstract:

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.

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1468-0297.2009.02318.x

Affiliations: 1: Stanford University 2: University of Cambridge and University of Manchester

Publication date: 2009-11-01