Scandinavian Working Papers in Economics
Working Papers in Economics,
University of Gothenburg, Department of Economics
No 555: State-Variable Public Goods and Social Comparisons over Time
Thomas Aronsson () and olof Johansson-Stenman ()
Additional contact information
Thomas Aronsson: Umeå School of Business and Economics, Postal: Dept of Economics, Umeå University, SE 901 87 Umeå, Sweden
olof Johansson-Stenman: School of Business, Economics and Law, Postal: University of Gothenburg, Dept of Economics, P.O. Box 640, SE 40530 Gothenburg, Sweden
Abstract: The optimal provision of a state-variable public good, where the global climate is the prime example, is analyzed in a model where people care about their relative consumption. We consider both keeping-up-with-the-Joneses preferences (where people compare their own current consumption with others’ current consumption) and catching-up-with-the-Joneses preferences (where people compare their own current consumption with others’ past consumption) in an economy with two productivity types, overlapping generations and optimal nonlinear income taxation. The extent to which the conventional rules for public provision ought to be modified is shown to depend on the strength of such relative concerns, but also on the preference elicitation format.
Keywords: State variable public goods; asymmetric information; relative consumption; status; positional preferences; climate policy.
43 pages, February 28, 2013
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