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Comparison Utility in a Growth Model

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  • Carroll, Christopher D
  • Overland, Jody
  • Weil, David N

Abstract

We examine the dynamics of two endogenous-growth models in which agents have comparison utility. In the inward-looking economy, individuals care about how their current consumption compares with their own past consumption. In the outward-looking economy, they care about how their own consumption compares with other people's consumption. In response to a negative shock to capital, saving and growth will temporarily fall in both of the models that we consider but will remain constant in a model with standard preferences. The decline will be smaller in the outward- than in the inward-looking case, but utility will be lower in the former case because of a negative externality. Copyright 1997 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Journal of Economic Growth.

Volume (Year): 2 (1997)
Issue (Month): 4 (December)
Pages: 339-67

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Handle: RePEc:kap:jecgro:v:2:y:1997:i:4:p:339-67

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Web page: http://www.springerlink.com/link.asp?id=102931

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  1. Karen E. Dynan, 1993. "Habit formation in consumer preferences: evidence from panel data," Working Paper Series / Economic Activity Section 143, Board of Governors of the Federal Reserve System (U.S.).
  2. Kapteyn, Arie & Wansbeek, Tom & Buyze, Jeannine, 1978. "The dynamics of preference formation," Economics Letters, Elsevier, vol. 1(1), pages 93-98.
  3. Abel, A.B., 1990. "Asset Prices Under Habit Formation And Catching Up With The Joneses," Weiss Center Working Papers 1-90, Wharton School - Weiss Center for International Financial Research.
  4. Sergio Rebelo, 1999. "Long Run Policy Analysis and Long Run Growth," Levine's Working Paper Archive 2114, David K. Levine.
  5. Sen, Amartya, 1983. "Poor, Relatively Speaking," Oxford Economic Papers, Oxford University Press, vol. 35(2), pages 153-69, July.
  6. Gali, J., 1992. "Keeping Up with the Joneses: Consumption Externalities, Portfolio Choice and Asset Prices," Papers 92-22, Columbia - Graduate School of Business.
  7. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  8. Cochrane, John H. & Campbell, John, 1999. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Scholarly Articles 3119444, Harvard University Department of Economics.
  9. Christopher D. Carroll & David N. Weil, 1993. "Saving and Growth: A Reinterpretation," NBER Working Papers 4470, National Bureau of Economic Research, Inc.
  10. G. Constantinides, 1990. "Habit formation: a resolution of the equity premium puzzle," Levine's Working Paper Archive 1397, David K. Levine.
  11. Parente, Stephen L & Prescott, Edward C, 1994. "Barriers to Technology Adoption and Development," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 298-321, April.
  12. John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 205-251, April.
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