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Well-Being and Affluence in the Presence of a Veblen Good

  • Mukesh Eswaran
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    We develop a series of simple general equilibrium models that incorporate a pure Veblen good. We examine the comparative statics of well-being, and the consumption of leisure, the Veblen good, a standard consumption good, a standard public good, and a good that we call community, with respect to exogenous increases in productivity. In all of our models, as productivity incrases, the Veblen good eventually comes to dominate the economy in the sense that, by reducing leisure, more than all of any added productivity is dissipated in the production of the Veblen good. In fact, except for some knife edge cases, the Veblen good eventually crowds out all other economic activity. In particular, our findings show that, in the presence of a Veblen good, productivity increases contribute to the destruction of social capital.

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    Paper provided by Department of Economics, University of Calgary in its series Working Papers with number 2008-12.

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    Date of creation: 07 Feb 2008
    Date of revision: 07 Feb 2008
    Handle: RePEc:clg:wpaper:2008-12
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