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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. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  2. Andrew Postlewaite, . ""The Social Basis of Interdependent Preferences''," CARESS Working Papres 97-14, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  3. 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.
  4. Oswald, Andrew, 1997. "Happiness and Economic Performance," The Warwick Economics Research Paper Series (TWERPS) 478, University of Warwick, Department of Economics.
  5. Corneo, Giacomo & Jeanne, Olivier, 1997. "On relative wealth effects and the optimality of growth," Economics Letters, Elsevier, vol. 54(1), pages 87-92, January.
  6. 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.
  7. Swan, Trevor W, 2002. "Economic Growth," The Economic Record, The Economic Society of Australia, vol. 78(243), pages 375-80, December.
  8. 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.
  9. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
  10. Howarth, Richard B., 1996. "Status effects and environmental externalities," Ecological Economics, Elsevier, vol. 16(1), pages 25-34, January.
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