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Luxury and Wealth Accumulation

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  • Ikeda, S.

Abstract

This paper develops a model of luxury goods by incorporating weakly non-separable, recursive preferences. In a two-good framework, a quasi-luxury is de ned as a good whose marginal rate of substitution is increasing in wealth. Under certain conditions, it is identical to a luxury good. Consumers wait for quasi-luxuries more (less) patiently than for quasi-necessities when they expect to be happier (unhappier) in the future. The preference for quasi-luxuries promotes optimal wealth accumulation and hence growth. In a two-country economy, the less patient country with stronger quasi-luxury preferences can be wealthier than the more patient country.

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File URL: http://www.iser.osaka-u.ac.jp/library/dp/2001/dp0528.pdf
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Bibliographic Info

Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0528.

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Length: 31 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:dpr:wpaper:0528

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Keywords: WEALTH ; WEALTH DISTRIBUTION ; PREFERENCES;

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References

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  1. Cole, Harold L & Mailath, George J & Postlewaite, Andrew, 1992. "Social Norms, Savings Behavior, and Growth," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1092-1125, December.
  2. Michael B. Devereux & Shouyong Shi, 1989. "Capital Accumulation and the Current Account in a Two-Country Model," Working Papers 761, Queen's University, Department of Economics.
  3. Corneo, Giacomo & Jeanne, Olivier, 1999. "Social Organization in an Endogenous Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 711-25, August.
  4. Becker, Robert & Zilcha, Itzhak, 1997. "Stationary Ramsey Equilibria under Uncertainty," Journal of Economic Theory, Elsevier, vol. 75(1), pages 122-140, July.
  5. Judd, Kenneth L., 1985. "Redistributive taxation in a simple perfect foresight model," Journal of Public Economics, Elsevier, vol. 28(1), pages 59-83, October.
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  7. Daniel S. Hamermesh, 1980. "Social Insurance and Consumption: An Empirical Inquiry," NBER Working Papers 0600, National Bureau of Economic Research, Inc.
  8. Maurice Obstfeld, 1989. "Intertemporal Dependence, Impatience, and Dynamics," NBER Working Papers 3028, National Bureau of Economic Research, Inc.
  9. Baland, Jean-Marie & Ray, Debraj, 1991. "Why does asset inequality affect unemployment? A study of the demand composition problem," Journal of Development Economics, Elsevier, vol. 35(1), pages 69-92, January.
  10. Robert E. Lucas Jr. & Nancy L. Stokey, 1982. "Optimal Growth with Many Consumers," Discussion Papers 518, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Besley, Timothy J, 1989. "A Definition of Luxury and Necessity for Cardinal Utility Functions," Economic Journal, Royal Economic Society, vol. 99(397), pages 844-49, September.
  12. Clarida, Richard H, 1990. "International Lending and Borrowing in a Stochastic, Stationary Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 543-58, August.
  13. Jonathan A. Parker, 1999. "The Reaction of Household Consumption to Predictable Changes in Social Security Taxes," American Economic Review, American Economic Association, vol. 89(4), pages 959-973, September.
  14. Epstein, Larry G & Hynes, J Allan, 1983. "The Rate of Time Preference and Dynamic Economic Analysis," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 611-35, August.
  15. Attanasio, Orazio P & Weber, Guglielmo, 1995. "Is Consumption Growth Consistent with Intertemporal Optimization? Evidence from the Consumer Expenditure Survey," Journal of Political Economy, University of Chicago Press, vol. 103(6), pages 1121-57, December.
  16. Epstein, Larry G., 1987. "A simple dynamic general equilibrium model," Journal of Economic Theory, Elsevier, vol. 41(1), pages 68-95, February.
  17. Richard Blundell & Martin Browning & Costas Meghir, 1993. "Consumer demand and the life-cycle allocation of household expenditures," IFS Working Papers W93/11, Institute for Fiscal Studies.
  18. Martin Browning & Thomas F. Crossley, 2000. "Luxuries Are Easier to Postpone: A Proof," Journal of Political Economy, University of Chicago Press, vol. 108(5), pages 1022-1026, October.
  19. Brewer, Anthony, 1998. "Luxury and Economic Development: David Hume and Adam Smith," Scottish Journal of Political Economy, Scottish Economic Society, vol. 45(1), pages 78-98, February.
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