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Status Effects and Negative Utility Growth

  • Ben Cooper
  • Cecilia Garcia-Penalosa
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    This paper explains the observed stagnation of `happiness` measures in the post-war period through a growth model in which agents care about conspicuous consumption. There are two goods: a `normal good` and a `status good`. Normal goods confer direct utility, while status goods confer utility only at the expense of someone who consumes less of the good. Firms can improve the quality of both goods through R&D. We show that the Nash equilibrium of the game in which consumers compete for status results in the share of expenditure on status goods increasing with the number of times the status good has been improved. As the economy grows, resources for innovation are transferred entirely to status-good R&D and the rate of improvement of normal good drops to zero. Improvement in status goods have only a negative effect on utility, consequently the long-run rate of utility growth is negative

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    Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 1998-W22.

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    Date of creation: 01 Dec 1998
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    Handle: RePEc:oxf:wpaper:1998-w22
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    1. Ng, Yew-Kwang, 1997. "A Case for Happiness, Cardinalism, and Interpersonal Comparability," Economic Journal, Royal Economic Society, vol. 107(445), pages 1848-58, November.
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