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Growth and the relativity of satisfaction. Math. Soc. Sci

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  • De la Croix, David

Abstract

We extend Ramsey's model to be in accordance with the facts that self-reported levels of satisfaction are almost unrelated to economic prosperity, both across countries and across time. We assume that things are judged by the extent to which they depart from social norms. Norms are based on the past experience of agents. A special case is when norms are built on the basis of the best previous experience. Agents do not internalize their own effect on social norms and the competitive equilibrium is sub-optimal. The dynamics display oscillations and a slow speed of adjustment or path dependency. An optimal solution can be decentralized by a planner by means of capital taxation along the adjustment path. Finally, fiscal policy is shown to display substantial transitory effects. (C) 1998 Elsevier Science B.V. All rights reserved.

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Bibliographic Info

Paper provided by Université catholique de Louvain in its series Open Access publications from Université catholique de Louvain with number info:hdl:2078.1/45592.

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Date of creation: 1998
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Publication status: Published in Mathematical Social Sciences (1998) v.36, p.105-125
Handle: RePEc:ner:louvai:info:hdl:2078.1/45592

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Web page: http://www.uclouvain.be

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Cited by:
  1. ARTIGE, Lionel & CAMACHO, Carmen & de la CROIX, David, 2003. "Wealth breeds decline : reversals of leadership and consumption habits," CORE Discussion Papers 2003054, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Varvarigos, Dimitrios, 2011. "Non-monotonic welfare dynamics in a growing economy," Journal of Macroeconomics, Elsevier, vol. 33(2), pages 303-312, June.

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