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Status Preferences and Economic Growth

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Abstract

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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  • Richard B. Howarth & Kjell Arne Brekke, 1998. "Status Preferences and Economic Growth," Discussion Papers 240, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:240
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    File URL: https://www.ssb.no/a/publikasjoner/pdf/DP/dp240.pdf
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. Oswald, Andrew J, 1997. "Happiness and Economic Performance," Economic Journal, Royal Economic Society, vol. 107(445), pages 1815-1831, November.
    3. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
    4. Kjell Arne Brekke & Richard B. Howarth, 1998. "The Social Contingency of Wants Implications for Growth and the Environment," Discussion Papers 227, Statistics Norway, Research Department.
    5. Postlewaite, Andrew, 1998. "The social basis of interdependent preferences," European Economic Review, Elsevier, vol. 42(3-5), pages 779-800, May.
    6. Swan, Trevor W, 2002. "Economic Growth," The Economic Record, The Economic Society of Australia, vol. 78(243), pages 375-380, December.
    7. 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 108-132, February.
    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. Howarth, Richard B., 1996. "Status effects and environmental externalities," Ecological Economics, Elsevier, vol. 16(1), pages 25-34, January.
    10. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. João Bernardino & Tanya Araújo, 2010. "On Positional Consumption and Technological Innovation- an Agent-based Approach," Working Papers Department of Economics 2010/04, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    2. Knut R. Wangen & Erik Biørn, 2001. "Prevalence and substitution effects in tobacco consumption: A discrete choice analysis of panel data," Discussion Papers 312, Statistics Norway, Research Department.

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