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Conspicuous Consumption and Inequality

  • Harriger, Jessica
  • Khanna, Neha
  • Pape, Andreas

We analyze the change in consumer demand following a mean preserving change in consumption inequality when there is conspicuous consumption. We model interdependent preferences including “keeping up with the Joneses” (imitating others) and “running away from the Joneses” (distinguishing oneself from others) with multiple peer groups and peer group effects (envy and snob effects). An individual not directly involved in the redistribution increases consumption of the more conspicuous good when she demonstrates i) ‘keeping up’ and a relatively stronger envy effect, or ii) ‘running away’ and a relatively stronger snob effect. Behaviors generated by existing models emerge as special cases.

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File URL: http://mpra.ub.uni-muenchen.de/24910/1/MPRA_paper_24910.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 24910.

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Date of creation: 15 Apr 2010
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Handle: RePEc:pra:mprapa:24910
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  1. Glazer, Amihai & Konrad, Kai A, 1996. "A Signaling Explanation for Charity," American Economic Review, American Economic Association, vol. 86(4), pages 1019-28, September.
  2. Postlewaite, Andrew, 1998. "The social basis of interdependent preferences," European Economic Review, Elsevier, vol. 42(3-5), pages 779-800, May.
  3. Alpizar, Francisco & Carlsson, Fredrik & Johansson-Stenman, Olof, 2001. "How Much Do We Care About Absolute Versus Relative Income and Consumption?," Working Papers in Economics 63, University of Gothenburg, Department of Economics.
  4. Kerwin Kofi Charles & Erik Hurst & Nikolai Roussanov, 2007. "Conspicuous Consumption and Race," NBER Working Papers 13392, National Bureau of Economic Research, Inc.
  5. Luttmer, Erzo F. P., 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," Working Paper Series rwp04-029, Harvard University, John F. Kennedy School of Government.
  6. Konrad, Kai A. & Lommerud, Kjell Erik, 1993. "Relative standing comparisons, risk taking, and safety regulations," Journal of Public Economics, Elsevier, vol. 51(3), pages 345-358, July.
  7. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, vol. 93(1), pages 423-428, March.
  8. Ferrer-i-Carbonell, Ada, 2005. "Income and well-being: an empirical analysis of the comparison income effect," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 997-1019, June.
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