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Economic Growth and the Relativity of Satisfaction

  • de la Croix, David

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) ; Belgian National Fund for Scientific Research (FNRS))

We extent Ramsey’s model to be in accordance with the facts that self-reported satisfaction levels are almost unrelated to economic prosperity, both across countries and across time. We assume that things are judged by the extent to which they depart from collective norms. Norms are based on the past experience of all agents. A special case is when norms are build on the basis of the best previous experience. Agents do not internalize their own effect on collective norms and the competitive equilibrium is thus sub-optimal. An optimal solution could however be decentralized by a planner. The dynamics displays oscillations, slow adjustment speed or path dependency and substantial transitory effects of fiscal policy.

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Paper provided by Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES) in its series Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) with number 1995023.

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Length: 18
Date of creation: 01 Aug 1995
Date of revision:
Handle: RePEc:ctl:louvir:1995023
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  10. de la Croix, David & Palm, Franz & Pfann, Gerard, 1993. "A Dynamic Contracting Model for Wages and Employment in three European Economies," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1993021, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
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  20. de la Croix, David, 1996. "The dynamics of bequeathed tastes," Economics Letters, Elsevier, vol. 53(1), pages 89-96, October.
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