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Genuine Saving and Conspicuous Consumption

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  • Aronsson, Thomas

    () (Dept of Economics, Umeå School of Business and Economics, Umeå University)

  • Johansson-Stenman, Olof

    () (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract

Much evidence suggests that people are concerned with their relative consumption, i.e., their consumption in relation to the consumption of others. Yet, the social costs of conspicuous consumption have so far played little (or no) role in savings-based indicators of sustainable development. The present paper examines the implications of such behavior for measures of sustainable development by deriving analogues to genuine saving when people are concerned with their relative consumption. Unless the resource allocation is a social optimum, an indicator of positional externalities must be added to genuine saving to arrive at the proper measure of intertemporal welfare change. A numerical example based on U.S. and Swedish data suggests that conventional measures of genuine saving (which do not reflect conspicuous consumption) are likely to largely overestimate this welfare change. We also show how relative consumption concerns affect the way public investment ought to be reflected in genuine saving.

Suggested Citation

  • Aronsson, Thomas & Johansson-Stenman, Olof, 2014. "Genuine Saving and Conspicuous Consumption," Working Papers in Economics 605, University of Gothenburg, Department of Economics.
  • Handle: RePEc:hhs:gunwpe:0605
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    Keywords

    welfare change; investment; saving; relative consumption;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D60 - Microeconomics - - Welfare Economics - - - General
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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