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Publication . Research . 2019

Relative consumption, relative wealth, and long-run growth : when and why is the standard analysis prone to erroneous conclusions?

Hof, Franz X.; Prettner, Klaus;
Open Access
English
Published: 01 Jan 2019
Publisher: Universität Hohenheim
Country: Germany
Abstract

We employ a novel approach for analyzing the effects of relative consumption and relative wealth preferences on both the decentralized and the socially optimal economic growth rates. In the pertinent literature these effects are usually assessed by examining the dependence of the growth rates on the two parameters of the instantaneous utility function that seem to measure the strength of the relative consumption and the relative wealth motive. We go beyond the sole consideration of parameters by revealing the fundamental factors that ultimately determine long-run growth. In doing so we identify widely used types of status preferences in which the traditional approach is prone to erroneous conclusions. For example, in one of these specifications the parameter that seems to determine the strength of the relative consumption motive actually also affects the strength of the relative wealth motive and the elasticity of intertemporal substitution.

Subjects by Vocabulary

Dewey Decimal Classification: ddc:330

Subjects

Wirtschaftswachstum, Verbrauch, Wohlstand, relative consumption, relative wealth, quest for status, long-run economic growth, social optimality, deep factors, Economics, D31, D62, O10, O30, long-run economicgrowth

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