Working Papers in Economics,
University of Gothenburg, Department of Economics

Abstract: Much evidence suggests that people are concerned with their relative consumption, i.e., their consumption in relation to the consumption of others. Yet, the social costs of conspicuous consumption have so far played little (or no) role in savings-based indicators of sustainable development. The present paper examines the implications of such behavior for measures of sustainable development by deriving analogues to genuine saving when people are concerned with their relative consumption. Unless the resource allocation is a social optimum, an indicator of positional externalities must be added to genuine saving to arrive at the proper measure of intertemporal welfare change. A numerical example based on U.S. and Swedish data suggests that conventional measures of genuine saving (which do not reflect conspicuous consumption) are likely to largely overestimate this welfare change. We also show how relative consumption concerns affect the way public investment ought to be reflected in genuine saving.

Keywords: welfare change; investment; saving; relative consumption

JEL-codes: D03; D60; D62; E21; H21; I31; Q56

40 pages, November 2014

Full text files

37368 HTML file 

Download statistics

• University of Gothenburg, Department of Economics
• Ordering Working Papers
• Home page for this series

Questions (including download problems) about the papers in this series should be directed to Jessica Oscarsson ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:hhs:gunwpe:0605This page generated on 2024-11-14 18:33:27.