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Status Preferences and Economic Growth

This paper examines the implications of status-seeking behavior for long-term growth in a competitive economy. We explore the intuitive hypothesis that the quest for enhanced economic status leads to excessive levels of production and consumption. In a Ramsey growth model in which preferences are altered to include a concern for relative consumption, status seeking has no impacts on the economys long-run equilibrium in the absence of a labor-leisure tradeoff. Relative consumption effects do, however, induce short-term departures from efficient resource allocation, either augmenting or depressing consumption growth rates in accordance with the elasticity of substitution between consumption and status. In the case where social status is defined in terms of the relative accumulation of manufactured capital, status seeking leads to excessive rates of short-run growth and inefficiently high levels of capital and consumption in the long-run equilibrium. Similar results hold when preferences embody a concern for career status as captured by the relative accumulation of human capital, and when relative consumption effects are accompanied by a labor-leisure tradeoff.

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Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 240.

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Date of creation: Nov 1998
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Handle: RePEc:ssb:dispap:240
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  1. Fershtman, Chaim & Murphy, Kevin M & Weiss, Yoram, 1996. "Social Status, Education, and Growth," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 108-32, February.
  2. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-37, October.
  3. Swan, Trevor W, 2002. "Economic Growth," The Economic Record, The Economic Society of Australia, vol. 78(243), pages 375-80, December.
  4. Howarth, Richard B., 1996. "Status effects and environmental externalities," Ecological Economics, Elsevier, vol. 16(1), pages 25-34, January.
  5. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  6. Oswald, Andrew J, 1997. "Happiness and Economic Performance," Economic Journal, Royal Economic Society, vol. 107(445), pages 1815-31, November.
  7. Andrew Postlewaite, . "The Social Basis of Interdependent Preferences," Penn CARESS Working Papers 6bd000503382ae2f0b90d25e3, Penn Economics Department.
  8. Corneo, Giacomo & Jeanne, Olivier, 1997. "On relative wealth effects and the optimality of growth," Economics Letters, Elsevier, vol. 54(1), pages 87-92, January.
  9. Kjell Arne Brekke & Richard B. Howarth, 1998. "The Social Contingency of Wants Implications for Growth and the Environment," Discussion Papers 227, Research Department of Statistics Norway.
  10. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
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