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Abstract

The paper develops a theoretical framework for studying conspicuous consumption. This is modeled as a device that signals the consumer's social status. Status is some function of the individual's rank in the wealth hierarchy. This approach makes it possible to distinguish between snob and conformist consumer behavior. It is shown that when behavior is conformist, the market demand curve for the good can exhibit a positive slope. A number of unconventional implications for public policy are then derived concerning taxation, monopoly power, and the voluntary provision of public goods.

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File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonsfa/bonsfa461.ps
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Bibliographic Info

Paper provided by University of Bonn, Germany in its series Discussion Paper Serie A with number 461.

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Date of creation: Dec 1994
Date of revision:
Handle: RePEc:bon:bonsfa:461

Contact details of provider:
Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de/index.php?id=517

Related research

Keywords: consumption externalities; status-seeking behavior; law of demand;

Find related papers by JEL classification:

• D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
• D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
• H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

References

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1. Dougan, William R, 1982. "Giffen Goods and the Law of Demand," Journal of Political Economy, University of Chicago Press, vol. 90(4), pages 809-15, August.
2. Barzel, Yoram & Suen, Wing, 1992. "The Demand Curves for Giffen Goods Are Downward Sloping," Economic Journal, Royal Economic Society, vol. 102(413), pages 896-905, July.
   
   • Barzel, Y. & Suen, W., 1991. "The Demand Curves for Giffen Goods are Downward Sloping," Working Papers 91-18, University of Washington, Department of Economics.
   • Barzel, Y. & Suen, W., 1991. "The Demand Curves for Giffen Goods are Downward Sloping," Discussion Papers in Economics at the University of Washington 91-18, Department of Economics at the University of Washington.
3. Karni, Edi & Levin, Dan, 1994. "Social Attributes and Strategic Equilibrium: A Restaurant Pricing Game," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 822-40, August.
4. Konrad, Kai A., 1992. "Wealth seeking reconsidered," Journal of Economic Behavior & Organization, Elsevier, vol. 18(2), pages 215-227, July.
5. Becker, Gary S, 1991. "A Note on Restaurant Pricing and Other Examples of Social Influences on Price," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1109-16, October.
   
   • Gary S. Becker, 1991. "A Note on Restaurant Pricing and Other Examples of Social Influences on Price," University of Chicago - George G. Stigler Center for Study of Economy and State 67, Chicago - Center for Study of Economy and State.
6. Frank, Robert H, 1984. "Are Workers Paid Their Marginal Products?," American Economic Review, American Economic Association, vol. 74(4), pages 549-71, September.
7. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, vol. 75(1), pages 101-16, March.
8. Michael L. Katz & Carl Shapiro, 1994. "Systems Competition and Network Effects," Journal of Economic Perspectives, American Economic Association, vol. 8(2), pages 93-115, Spring.
9. Milgrom, Paul & Roberts, John, 1986. "Price and Advertising Signals of Product Quality," Journal of Political Economy, University of Chicago Press, vol. 94(4), pages 796-821, August.
   
   • Paul R. Milgrom & John Roberts, 1984. "Price and Advertising Signals of Product Quality," Cowles Foundation Discussion Papers 709, Cowles Foundation for Research in Economics, Yale University.
10. Hollander, Heinz, 1990. "A Social Exchange Approach to Voluntary Cooperation," American Economic Review, American Economic Association, vol. 80(5), pages 1157-67, December.
11. Ireland, Norman J., 1994. "On limiting the market for status signals," Journal of Public Economics, Elsevier, vol. 53(1), pages 91-110, January.
12. Gerhard Orosel, 1986. "Tentative notes on prestige seeking and pareto-efficiency," Journal of Economics, Springer, vol. 5(1), pages 169-194, December.
13. Ng, Yew-Kwang, 1987. "Diamonds Are a Government's Best Friend: Burden-Free Taxes on Goods Valued for Their Values," American Economic Review, American Economic Association, vol. 77(1), pages 186-91, March.
14. Coelho, Philip R P & McClure, James E, 1993. "Toward an Economic Theory of Fashion," Economic Inquiry, Western Economic Association International, vol. 31(4), pages 595-608, October.

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Cited by:

1. Corneo, Giacomo G., 1997. "The theory of the open shop trade union reconsidered," Labour Economics, Elsevier, vol. 4(1), pages 71-84, March.
2. Peter Funk, 1994. "Economic Possibilities for the Grandchildern of John Maynard Keynes," Discussion Paper Serie A 512, University of Bonn, Germany.

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