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Full-Text Articles in Behavioral Economics
Resource Allocation, Affluence And Deadweight Loss When Relative Consumption Matters, Jesse A. Matheson, B. Curtis Eaton
Resource Allocation, Affluence And Deadweight Loss When Relative Consumption Matters, Jesse A. Matheson, B. Curtis Eaton
Jesse A Matheson
We explore the link between affluence and well-being using a simple general equilibrium model with a pure Veblen good. Individuals derive utility from the pure Veblen good based solely on how much they consume relative to others. In equilibrium, consumption of the pure Veblen good is the same for everyone, so the Veblen good contributes nothing to utility. Hence, resources devoted to the Veblen good provide us with a measure of deadweight loss. We ask: Under what preference conditions does the proportion of productive capacity devoted to the pure Veblen good increase as an economy becomes more affluent? In a …