Quintana-Domeque, Climent, Turino, Francesco
Relative Concerns on Visible Consumption: A Source of Economic Distortions
The B.E. Journal of Theoretical Economics. 2015, 16(1): 33-45. doi:10.1515/bejte-2015-0025
URI: http://hdl.handle.net/10045/52494
DOI: 10.1515/bejte-2015-0025
ISSN: 1935-1704
Abstract: 
Do relative concerns on visible consumption give rise to economic distortions? We re-examine the question posited by Arrow and Dasgupta (2009) building upon their general framework but recognizing that relative concerns can only apply to visible goods (e.g., cars, clothing, jewelry) and that households consume both visible and non-visible goods. Contrary to Arrow and Dasgupta (2009), the answer to this question turns to be always affirmative: the competitive equilibrium will always be different than the socially optimal one, since individuals do not take into account the negative externality they exert on others through the consumption of the visible good, while the social planner does. If one invokes separability assumptions, then the steady state competitive equilibrium consumption of non-visible goods will be strictly lower than the socially optimal one.
Keywords:Visible goods, Non-visible goods, Conspicuous consumption, Conspicuous leisure, Labor supply, Market distortions
De Gruyter
info:eu-repo/semantics/article