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Status Seeking and Bubbles

In: International Trade and Economic Dynamics

Author

Listed:
  • Kamihigashi Takashi

    (RIEB, Kobe University, Rokkodai)

Abstract

This chapter examines the possibility of stock market bubbles in a deterministic variant of the Lucas (Econometrica 46:1429–1445, 1978) asset pricing model in which utility depends on status in addition to consumption. Status is formulated first as the ratio of the individual level of wealth to the average level of wealth in the economy, and second as the difference of the individual level and the average level. It is shown that in the first case, bubbles are ruled out by the transversality condition, whereas in the second case, bubbles are possible because all increasing price paths satisfying the Euler equation also satisfy the transversality condition.

Suggested Citation

  • Kamihigashi Takashi, 2009. "Status Seeking and Bubbles," Springer Books, in: Takashi Kamihigashi & Laixun Zhao (ed.), International Trade and Economic Dynamics, pages 383-392, Springer.
  • Handle: RePEc:spr:sprchp:978-3-540-78676-4_26
    DOI: 10.1007/978-3-540-78676-4_26
    as

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