Will the Consumption Externalities' Effects in the Ramsey Model Please Stand Up?
AbstractThis paper investigates household decisions when individual utility depends on a consumption reference level. The desire to ``keep up with the Joneses'' represents one such example. The prior literature shows that, in a Ramsey model, consumption externalities have no impact on steady state behavior, once labor supply is exogenous. In contrast, this paper argues that --- once there is (exogenous) technological change --- consumption externalities always affect steady state behavior, even if labor supply is exogenous. The nature of the effects depends on the consumption externality's impact on a household's elasticity of marginal utility of consumption.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 22905.
Date of creation: 25 May 2010
Date of revision:
Consumption externality; keeping up with the Joneses; Ramsey model; intertemporal elasticity of substitution;
Other versions of this item:
- Wendner, Ronald, 2011. "Will the consumption externalities' effects in the Ramsey model please stand up?," Economics Letters, Elsevier, vol. 111(3), pages 210-212, June.
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-06-04 (All new papers)
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