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A Note about Savings as a "Nonpositional Good."

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  • George Kosicki

Abstract

Empirical evidence contradicts the view that savings rates are independent of permanent income levels. Instead, a distinctive nonlinear relationship between savings and permanent income has been found. What explains this result? Using Robert Frank's model of the demand for nonpositional goods, this note explores the impact that treating savings as a nonpositional good has on the relationship between savings and permanent income. Frank's model is extended and predictions are generated for various income distributions and utility function parameters. The similarity of the predictions to existing evidence increases as more weight is given to current consumption rank.

Suggested Citation

  • George Kosicki, 1988. "A Note about Savings as a "Nonpositional Good."," Eastern Economic Journal, Eastern Economic Association, vol. 14(3), pages 271-276, Jul-Sep.
    • Handle: RePEc:eej:eeconj:v:14:y:1988:i:3:p:271-276
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume14/V14N3P271_276.pdf
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    References listed on IDEAS

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    1. Modigliani, Franco, 1986. "Life Cycle, Individual Thrift, and the Wealth of Nations," American Economic Review, American Economic Association, vol. 76(3), pages 297-313, June.
    2. Menchik, Paul L & David, Martin, 1983. "Income Distribution, Lifetime Savings, and Bequests," American Economic Review, American Economic Association, vol. 73(4), pages 672-690, September.
    3. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, vol. 75(1), pages 101-116, March.
    4. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
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    1. George Kosicki, 1990. "Income Redistribution and Aggregate Consumption: Implications of the Relative Income Model," The American Economist, Sage Publications, vol. 34(1), pages 40-44, March.
    2. Feltovich, Nick & Ejebu, Ourega-Zoé, 2014. "Do positional goods inhibit saving? Evidence from a life-cycle experiment," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 440-454.

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