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Comparison Utility in a Growth Model

  • Carroll, Christopher D
  • Overland, Jody
  • Weil, David N

We examine the dynamics of two endogenous-growth models in which agents have comparison utility. In the inward-looking economy, individuals care about how their current consumption compares with their own past consumption. In the outward-looking economy, they care about how their own consumption compares with other people's consumption. In response to a negative shock to capital, saving and growth will temporarily fall in both of the models that we consider but will remain constant in a model with standard preferences. The decline will be smaller in the outward- than in the inward-looking case, but utility will be lower in the former case because of a negative externality. Copyright 1997 by Kluwer Academic Publishers

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Article provided by Springer in its journal Journal of Economic Growth.

Volume (Year): 2 (1997)
Issue (Month): 4 (December)
Pages: 339-67

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Handle: RePEc:kap:jecgro:v:2:y:1997:i:4:p:339-67
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  1. Gali, J., 1992. "Keeping Up with the Joneses: Consumption Externalities, Portfolio Choice and Asset Prices," Papers 92-22, Columbia - Graduate School of Business.
  2. Christopher D. Carroll & David N. Weil, 1993. "Saving and growth: a reinterpretation," Working Paper Series / Economic Activity Section 140, Board of Governors of the Federal Reserve System (U.S.).
  3. Sergio T. Rebelo, 1990. "Long Run Policy Analysis and Long Run Growth," NBER Working Papers 3325, National Bureau of Economic Research, Inc.
  4. Andrew B. Abel, . "Asset Prices Under Habit Formation and Catching Up With the Jones," Rodney L. White Center for Financial Research Working Papers 1-90, Wharton School Rodney L. White Center for Financial Research.
  5. Kapteyn, Arie & Wansbeek, Tom & Buyze, Jeannine, 1978. "The dynamics of preference formation," Economics Letters, Elsevier, vol. 1(1), pages 93-98.
  6. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  7. Constantinides, George M, 1990. "Habit Formation: A Resolution of the Equity Premium Puzzle," Journal of Political Economy, University of Chicago Press, vol. 98(3), pages 519-43, June.
  8. Karen E. Dynan, 1993. "Habit formation in consumer preferences: evidence from panel data," Working Paper Series / Economic Activity Section 143, Board of Governors of the Federal Reserve System (U.S.).
  9. Cochrane, John H. & Campbell, John, 1999. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Scholarly Articles 3119444, Harvard University Department of Economics.
  10. John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 205-251, April.
  11. Parente, Stephen L & Prescott, Edward C, 1994. "Barriers to Technology Adoption and Development," Journal of Political Economy, University of Chicago Press, vol. 102(2), pages 298-321, April.
  12. Sen, Amartya, 1983. "Poor, Relatively Speaking," Oxford Economic Papers, Oxford University Press, vol. 35(2), pages 153-69, July.
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