getting ahead of the joneses when equality increases conspicuous consumption among bottom tier consumers it is widely believed that increasing the equality of material possessions or income in a social group should lead people at the bottom of the distribution to consume less and save more however this prediction and its causal mechanism have never been studied experimentally five studies show that greater equality increases the satisfaction of those in the lowest tier of the distribution because it reduces the possession gap between what they have and what others have however greater equality also increases the position gains derived from status enhancing consumption since it allows low tier consumers to get ahead of the higher proportion of consumers clustered in the middle tiers as a result greater equality reduces consumption when consumers focus on the narrower possession gap but it increases consumption when they focus on the greater position gains i e when consumption is conspicuous social competition goals are primed and the environment is competitive

art as an investment and conspicuous consumption good ments art is also a consumption good art owners take pleasure in its intrinsic value e g for aesthetic pleasure or as a storehouse of an artist s deftness and to the extent that it is a luxury good they derive additional enjoyment from the signal of wealth that owning a masterpiece transmits it is the mixture of pecuniary and nonpecuniary payoffs to ownership that makes artworks both compelling to purchase and difficult to value i exploit this insight to explain why the measured risk premium of a portfolio of artworks is low compared to other risky assets in a consumption based pricing model an asset s risk premium is a function of the covariance of its returns with agents marginal utility of consump tion agents need to be compensated if the asset pays off in a period of already high utility as a luxury good relative art demand is an increasing function of wealth therefore positive shocks to income increase the demand price and returns to art in periods of high consumption utility implying a high risk premium this intuition is at odds with empirical studies that quantify the average financial returns of paintings relative to more traditional investment vehicles these studies find that art 1 often underperforms relative to equities and bonds while there have been

a model of the it products in fashion one of the characteristics of the fashion marketplace is the unpredictability and apparent randomness of fashion hits another one is the information asymmetry among consumers in this paper we consider fashion as a means consumers use to signal belonging to a higher social rank and propose an analytical model of fashion hits in the presence of competition and consumers who can coordinate on which product to use we show that consistent with the observed market phenomenon in equilibrium consumer coordination involves randomization between products chosen i e in randomness of fashion hits analyzing optimal consumer choice we find that whenever low type consumer demand for a product is positive a price increase results in a higher probability of high type consumers choosing this product but lower low type consumer demand we also show that although high type consumers may prefer higher prices that would lead to complete separation of the high and the low type consumers through product use in equilibrium firms always price as to attract positive demand from low type consumers the equilibrium price and profits turn out to be nonmonotonic in the low type consumer valuation of being recognized as belonging to a higher social rank equilibrium profits first increase and then decrease in this valuation

status seeking income taxation and efficiency abstract it is well known that status seeking produces distortions in consumption competition to achieve status leads to over consumption of those goods which confer status it has been found that taxing such goods may even lead to pareto improvements in this paper we extend a model of status which relies on a signalling equilibrium approach to include the individual labour supply decision and an income tax we show that a pareto improving income tax can exist even with the simplest tax benefit scheme a number of results follow the model is extended to a two period analysis to accommodate the reputation building element of status achievement without altering the conclusions

conspicuous consumption and sophisticated thinking consumers purchase conspicuous goods to satisfy not only material needs but also social needs such as prestige in an attempt to meet these social needs producers of conspicuous goods like cars perfumes and watches highlight the exclusivity of their products in this paper we propose a monopoly model of conspicuous consumption using the rational expectations framework and then examine how purchase decisions are affected by the desire for exclusivity and conformity we show that snobs can have an upward sloping demand curve but only in the presence of consumers who are weakly followers laboratory tests lend support for this model prediction and for the rational expectations framework the experimental results suggest that subjects used some degree of sophisticated thinking to arrive at their first period decisions their behavior in the subsequent trials however can be adequately captured by a purely adaptive learning mechanism we discuss the implications of consumer learning for optimal dynamic pricing policy by a monopolist

explaining fashion cycles imitators chasing innovators in product space abstract this paper considers the problem of a fashion trend setter confronting an imitator who can produce the same product at lower cost a one dimensional product space is considered which is an abstraction of the key attribute of some consumer good three broad strategies can be optimal for the fashion leader 1 never innovate which milk profits from the initially advantageous position but ultimately concede the market without a fight 2 innovate once but only once which just temporarily defers conceding the market 3 cycle infinitely around product space never letting the imitator catch up and capture the market sometimes the cycles start immediately sometimes the innovator should wait for a time before beginning the cycles the optimal solution exhibits strong state dependency with so called skiba curves separating regions in state space where various of these strategies are optimal there are even instances of intersecting skiba curves in most cases analytical expressions can be stated that characterize these skiba curves

commonality in product design cost saving valuation change and cannibalization abstract offering a variety of products is important for a firm to attract different consumer segments however high product variety increases production and distribution costs modular product design and parts commonality are approaches used to counter this trend in cost and still offer a variety of products this paper develops a model to examine when modular products should be introduced and how much modularity to offer the model looks at a market consisting of a high segment and a low segment customers choose the product that maximizes their surplus which is defined as the product s utility minus its price presence of commonality affects the utility of a product greater commonality decreases production cost but makes the products more indistinguishable from one another this makes the product more desirable for the low segment but less desirable for the high segment the firm s objective is to design the products and set the prices so as to maximize its profit

what do entrepreneurs pay for venture capital affiliation this study empirically evaluates the certification and value added roles of reputable venture capitalists vcs using a novel sample of entrepreneurial start ups with multiple financing offers i analyze financing offers made by competing vcs at the first professional round of start up funding holding characteristics of the start up fixed offers made by vcs with a high reputation are three times more likely to be accepted and high reputation vcs acquire start up equity at a 10 14 discount the evidence suggests that vcs extra financial value may be more distinctive than their functionally equivalent financial capital these extra financial services can have financial consequences a central issue for early stage high tech entrepreneurs is obtaining external resources when the assets of their start up are intangible and knowledge based particularly for entrepreneurs without an established reputation convincing external resource providers such as venture capitalists vcs to provide financial capital may be challenging the literature contains two main lines of research for overcoming this problem one research stream has concentrated on designing institutional structures to permit financing early stage ventures this contractual and monitoring based approach is aimed at solving potential agency problems between investors and entrepreneurs e g admati and pfleiderer 1994 lerner 1995 hellmann 1998 and kaplan and str omberg 2001 2002 2003 a second research stream has suggested that when the quality of a start up cannot be directly observed external actors rely on the quality of the start up s affiliates as a signal of the start up s own quality

street crime and street culture a model shows how reputation concerns can support widespread street crime a street culture where the direct incentives for such behavior are weak there are social benefits to street reputations but those benefits are dominated when reputation concerns draw into crime those who obtain no direct gain from it the model matches facts about violent crime that a standard model cannot easily explain including low monetary returns disproportionate victimization of the young and poor and high variance in rates across small distances the model generates novel implications for policy and social science including a negative effect of social capital

optimal dynamic taxation with distinctive forms of social status attainment we examine the role of both consumption and wealth induced social comparisons in setting dynamic optimal income taxation under complete information state invariant labor income taxes are used to remedy the externality caused by consumption induced social comparisons while state contingent capital income taxes are used to remedy the externalities caused by both consumption and wealth induced ones under incomplete information distinct types of agents are subject to an identical marginal capital income tax which removes social comparisons to solve the information problem low productivity agents could be subject to a lower marginal labor tax than high productivity agents which contradicts the traditional result in the mirrlees stiglitz models this article is protected by copyright all rights reserved

adverse selection without single crossing monotone solutions abstract the single crossing assumption simplifies the analysis of screening models as local incentive compatibility becomes sufficient for global incentive compatibility if single crossing is violated global incentive compatibility constraints have to be taken into account this paper studies monotone solutions in a screening model that allows a one time violation of single crossing the results show that local and non local incentive constraints distort the solution in opposite directions therefore the optimal decision might involve distortions above as well as below the first best decision furthermore the well known no distortion at the top property does not necessarily hold the results show that the decision can even be distorted above first best for all types sufficient conditions for existence strict monotonicity and continuity of the solution are presented a new necessary condition satisfied by such solutions is found an algorithm based on this condition can calculate continuous and strictly monotone solutions

macroeconomic implications of conspicuous consumption a sombartian dynamic model this chapter presents a dynamic general equilibrium model in which consumers have status preference i investigate the manner in which capital accumulation is impeded by conspicuous consumption a la corneo and jeanne j public econ 66 55 71 1997a following the literature social norms are given as either bandwagon type or snob type i then show that when the economy is characterized by a bandwagon type social norm capital accumulation exhibits interesting patterns those patterns include for example an oscillating convergence path the rise of the economy feeds its decay through conspicuous consumption and that decay suppresses conspicuous consumption and engenders prosperity as predicted by sombart liebe luxus und kapitalismus reprinted 1967 deutscher taschenbuch verlag munchen 1912

optimal income tax in the presence of status effects abstract the existence of distortions from individuals competing to attain social status by using consumption signals justifies some measure of income tax as a counter acting distortion the question posed here is whether it also constitutes a reason for a more progressive income tax schedule the answer is found to be broadly negative if progressiveness is interpreted as a more convex tax schedule unless the rich are more concerned with status seeking than the poor on the other hand status seeking makes the optimal tax schedule steeper so that redistribution is increased essentially the analysis of status seeking based on a signaling approach confirms and strengthens the existing view of an optimal tax schedule and can be incorporated into the diamond american economic review 88 1998 83 95 approach

existence and computation of mixed strategy nash equilibrium for 3 firms location problem location problems of firms on a closed interval were introduced by hotelling 3 and later investigated by eaton lipsey 2 firms sell a homogeneous product at a fixed price customers distributed along the interval buy one unit each from the firm nearest to them and firms aim to maximize the number of their customers it is well known that where the customers are evenly distributed along the interval and the number of firms is other than 3 the location problem has a pure strategy nash equilibrium see 2 the case of 3 firms is peculiar in that no pure strategy nash equilibrium exists for in any situation one of the extreme firms not located between the other two can increase its revenue by either moving towards or away from the other two firms the existence of mixed strategies is not obvious because the payoff functions are discontinuous whenever two or more firms are located at the same point in a recent paper dasgupta and maskin 1 investigate a class of games all derived from economic problems and all with some discontinuities in their payoff functions they demonstrate that the discontinuities in the payoff functions do not prevent the existence of mixed strategies nash equilibria in the games investigated in particular location problems of the type described earlier have such weak discontinuities and hence possess a mixed strategy nash equilibrium although their proof is constructive offering a method of approaching these equilibria as a limit of equilibria of finite games the equations involved very quickly become unmanageable in this note we compute a mixed strategy nash equilibrium for the 3 firms location problem let the customers be evenly distributed along 0 1 then a mixed strategy is a probability measure over 0 1 the symmetry of the problem suggests that the solution will be doubly symmetric in that all firms choose the same mixed strategy and that this strategy is symmetric around symmetric locations are given the same probabilities dasgupta and maskin confine their analysis to doubly symmetric solutions and prove that the strategies in any doubly symmetric equilibrium are atomless given the symmetric nature of the game and following the analysis of dasgupta and maskin we shall confine ourselves here to such doubly sym

waves in consumption with interdependence among consumers this paper presents a model to analyze the development of consumption patterns when there are social interactions among consumers in particular a consumer in this model recognizes three reference groups a peer group of similar consumers with whom the consumer wishes to share consumption activities a distinction group from which the consumer wishes to distinguish him or herself and an aspiration group to which the consumer does not belong but wishes that he she did and with whom the consumer would like to share consumption activities the interplay of aspiration and distinction can lead to waves in consumption these can happen when for example the avant garde consumption of up market pioneers is copied by other types of consumer as the latter aspire to emulate the former the former in turn seek to distinguish themselves from these unwelcome companions by varying their consumption in consequence a particular consumption activity may start up market an then gradually proceed down the social spectrum more complex patterns with continuing cycles in consumption can also be found the paper argues that this model is not only applicable to the consumption behaviour of an elite or would be elite but is relevant in a wide range of consumption settings

social image concerns and welfare take up abstract using a laboratory experiment we present first evidence that social image concerns causally reduce the take up of an individually beneficial transfer our design manipulates the informativeness of the take up decision by varying whether transfer eligibility is based on ability or luck and how the transfer is financed we find that subjects avoid the inference both of being low skilled ability stigma and of being willing to live off others free rider stigma using a placebo treatment we exclude other explanations for the observed stigma effects although stigma reduces take up elicitation of political preferences reveals that only a minority of taxpayers vote for the public transfer

pecuniary emulation inequality and growth abstract we study a two class growth model in which agents care about both consumption and the social perception of their wealth rank the latter determines the social status enjoyed by agents social perceptions are based upon noisy signals of wealth and in equilibrium there is incomplete separation of classes the steady growth rate of the economy increases with the full information status differential between classes and contrary to the growth model without status it is affected by the initial level of wealth inequality both too much equality and too much inequality are detrimental to economic growth

what s in a sign trademark law and economic theory the aim of this paper is to summarize the extant theory as it relates to the economics of trademark and to give some suggestions for further research with reference to distinct streams of literature the proposed line of study inevitably looks at the complex relationship between signs and economics copyright 2006 the authors journal compilation 2006 blackwell publishing ltd

trust institutions and the generally speaking question a reply to uslaner in his critical reply on my article uslaner points to several issues amongst others the lack of observations in the principal components analysis and the fundamental relationship between micro and macro trust on the one hand and institutions on the other hand of these two i hold the second one to be most important and i will therefore focus on this issue i will also use this opportunity to position our trust discussion in the broader context of contemporary economic research on culture copyright the author 2008 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

global influences on uk manufacturing prices 1970 2000 abstract we introduce the first consistent series of domestic product and related import price indices at the industry level for the uk using the data to analyse both domestic and international determinants of uk manufactured product prices foreign influences on uk prices in domestic markets are always present but domestic cost movements dominate we show that the pass through of world price tariff and exchange rate changes into product prices is partial in general and varies markedly between product categories standard tariff and exchange rate theories overstate price responses to global pricing determinants and fail to allow for variation between industrial sectors such theories can mislead when used for policy analysis and prediction

conspicuous consumption and race evidence from south africa abstract a century ago thorstein veblen introduced socially contingent consumption into the economic literature this paper complements the scarce empirical literature by testing his conjecture on south african household data and finds that black and coloured households spend relatively more on visible consumption than comparable white households following the approach of charles et al 2009 this paper explores whether the differences in visible expenditures can be explained with a signaling model of status seeking moreover it is assessed to which extent positional concerns motivate conspicuous consumption although the socially contingent share in visible consumption increases with income different incentives to consume conspicuously seem to explain that at every level of income black households spend relatively more on visible consumption than comparable white households in contrast to the findings of charles et al 2009 where differential spending on conspicuous consumption can be found also within each group separately the model s core hypothesis fails to hold within the group of white south africans

conspicuous consumption and race using nationally representative data on consumption we show that blacks and hispanics devote larger shares of their expenditure bundles to visible goods clothing jewelry and cars than do comparable whites these differences exist among virtually all subpopulations are relatively constant over time and are economically large although racial differences in utility preference parameters might account for a portion of these consumption differences we emphasize instead a model of status seeking in which conspicuous consumption is used as a costly indicator of a household s economic position using merged data on race and state level income we demonstrate that a key prediction of the status signaling model that visible consumption should be declining in reference group income is strongly borne out in the data for each racial group moreover we show that accounting for differences in reference group income characteristics explains most of the racial difference in visible consumption

globalization and household saving is there a link abstractthis article proposes that globalization can affect household saving in the long run in a number of ways social interactions between different cultures can induce value changes which can result in shifts in consumption and saving behaviour international trade allows consumers to have easier access to status goods stimulating consumption and dampening saving extending from veblen s conspicuous consumption theory saving may also decrease when globalization leads to greater population mobility and fosters urbanization thus enhancing the importance of consumption as a way to display wealth in addition financial globalization reduces credit constraints and allows households to save less using cross country data from the united nations un the oecd and other sources this article finds evidence that household saving declines as globalization deepens especially in the social and cultural dimensions

optimal pricing of a conspicuous product during a recession that freezes capital markets abstract this paper considers the problem of how to price a conspicuous product when the economy is in a recession that disrupts capital markets a conspicuous product in this context is a luxury good for which demand is increasing in brand image brand image here means the ability of a consumer to impress observers by conspicuously displaying consumption of the good brand image is built up when the good is priced high enough to make it exclusive and eroded if the good is discounted recession is modeled as having two effects it reduces demand and it freezes capital markets so borrowing is not possible in pricing the conspicuous product the firm faces the following trade off reducing price helps maintain sales volume and cash flow in the face of reduced demand but it also damages brand image and thus long term demand the paper analyzes the firm s pricing policy facing scenarios of mild intermediate and severe recessions while taking the threat of bankruptcy into account for an intermediate recession the optimal solution is history dependent the results have implications for policy interventions in capital markets and for timing of mergers and acquisitions

on limiting the market for status signals abstract in many societies individuals care how others view them in their efforts to impress such individuals engage in consumption signals which attempt to establish higher levels of status than their true status type this leads to an inefficiency which offers the possibility of a pareto improving tax policy the impacts of tax policy and benefits on the signalling equilibrium are considered

pricing of conspicuous goods a competitive analysis of social effects abstract social needs play an important role in the purchase of conspicuous goods in this article the authors extend traditional economic models to accommodate social needs such as desire for uniqueness and conformism and examine their implications for pricing conspicuous goods first in the context of a duopoly the authors identify the conditions under which the desire for uniqueness can increase demand among some consumers as the price of a product increases second the authors show that though the desire for uniqueness leads to higher prices and firm profits a desire for conformity leads to lower prices and profits third the authors find that consumers purchase high quality products not because of their desire for uniqueness but despite it finally marketers of conspicuous goods may find it beneficial not to emphasize the functional differences among their products when the need for uniqueness is high in a laboratory test the authors find support for the claim that demand for a product amo

social limits to redistribution in many countries equality of political rights including the right to vote over taxes and transfers goes along with substantial inequality of economic conditions this observation lies at the root of one fundamental issue in political economy one about the factors that limit the extent of redistribution in democracies the conventional economic wisdom on this issue can roughly be summarized by two arguments firstly redistributive taxation may be limited by various kinds of incentive costs of taxation as e g in james a mirrlees 1971 kevin w s roberts 1977 dennis n epple and thomas romer 1991 and thomas piketty 1995 secondly redistribution may be dampened by the lobbying activity of high income groups and by various imperfections inherent to the political process that determines the tax system as e g in gary s becker 1983 and john e roemer 1995 while both arguments offer illuminating insights into the phenomenon of redistribution they are also based on a very crude description of human behavior one which ignores social motivations of action both in the economic and the political sphere the present paper develops an explanation that takes such motivations into account specifically it shows that limits to redistribution may arise when economic inequality has an informational value for social decisions our approach is based upon the following observation many goods and decisions that heavily affect an individual s quality of life are not allocated or made through markets but through social interactions thomas scitovsky 1976 for instance although people have strong preferences over how they are treated by others and over whom they mate with these things are not the object of market transactions a number of sources of satisfaction like conversation dinners and parties playing with others and being observed and admired are nonmarket goods for which a keen social competition between individuals often develops as shown by harold cole et al 1992 the existence of social rather than market competition for some goods can endogenously generate a concern for relative position in the income distribution when information about relative income is private individuals become interested in the observable consumption differentials between them and their social competitors since consumption differentials are influenced by redistributive taxation the political attitudes of people toward redistribution will be shaped by its expected impact on social competition in some identifiable environments this concern for social success may be the crucial factor that limits the extent of redistribution desired by a majority of voters specifically while the middle class may obtain economic benefits from a large amount of redistributive taxation it may oppose an equalization of living standards since this would harm its social success the fear of losing social status in favor of the poor induces the middle class to enter a political alliance with the rich which supports conservative taxation programs in the sociological literature scholars of voting behavior have often suggested that the need for social recognition plays a crucial role in shaping political attitudes seymour m lipset 1967 pointed out that white collar workers tend to be socially valued similarly as those higher in the system and although their income may be only slightly larger than that of manual workers white collars are much more likely to corneo department of economics university of osnabruck rolandstrasse 8 d 49069 osnabruck germany cesifo munich and cepr london gruner department of economics university of mannheim d 68131 mannheim germany iza bonn and cepr london we would like to thank emmanuelle auriol dieter bos peter funk mike hout olivier jeanne peter jonas georg noldeke thomas piketty regis renault john roemer jens weidmann and three anonymous referees for insightful comments and suggestions we have also benefited from the comments of participants at workshops and conferences in barcelona bonn davis jena maastricht magdeburg mannheim montreal munich rotterdam silvaplana tel aviv tilburg toulouse and warwick at which we presented earlier versions of this work financial support from the deutsche forschungsgemeinschaft sfb 303 at the university of bonn is gratefully acknowledged

dynamic models of religious conformity and conversion theory and calibrations abstract this paper develops overlapping generations models to explain and simulate changes in the proportion of secular and religious people the church is modeled as generating an externality associated with conformity enhancing education observed changes in the number of nonbelievers are explained by different birth rates among secular and religious parents and the relative proportion of young nonconformists calibrations for the conformity rates among secular and religious people show that the observed long run increase in the difference between percentage of secular people in europe and the united states can be attributed to lower conformity rates prevailing in europe

running to keep in the same place consumer choice as a game of status if individuals care about their status defined as their rank in the distribution of consumption of one positional good then the consumer s problem is strategic as her utility depends on the consumption choices of others in the symmetric nash equilibrium each individual spends an inefficiently high amount on the status good using techniques from auction theory we analyze the effects of exogenous changes in the distribution of income in a richer society almost all individuals spend more on conspicuous consumption and individual utility is lower at each income level in a more equal society the poor are worse off

pricing anomalies in the market for diamonds evidence of conformist behavior some goods are consumed not just for their intrinsic utility but also for the impression their consumption has on others we analyze the market for such a commodity diamonds we collect data on price and other attributes from the inventories of three large online retailers of diamonds we find that people are willing to pay premiums upward of 18 for a diamond that is one half carat rather than slightly less than a half carat and between 5 and 10 for a one carat rather than a slightly less than one carat stone since a major portion of larger gem quality diamonds are used for engagement rings such an outcome is consistent with bernheim s model of conformism where individuals try to conform to a single standard of behavior that is often established at a focal point in this case prospective grooms signal their desirability as a

promotions and product pricing parsimony versus veblenesque demand the veracity of the parsimonious law of demand has long been challenged by analyses of the veblen effect and prestige pricing backward bending demand curves often attend discussions of conspicuous consumption probing the sociological and psychological intricacies of potential consumer interdependencies scholars in economics and marketing have overlooked mundane product promotions for a monopolistic firm we formalize the relationship between the optimal price quantity combination and the thoroughness of product promotions iterating toward the profit maximizing thoroughness of product promotion gives rise to a backward bending price quantity locus challenges to the law of demand that ignore product promotions are thereby undercut

if you tourist behave irrationally i ll find you abstract when departures from rational behavior can potentially be expected modeling should allow for their identification and their quantification in this regard prices in tourism might have effects that may not be as apparent as economic theory predicts this article incorporates the sticker shock formulation into the mixed logit model without imposing consistency with consumer theory to accommodate any possible positive or negative price effects by allowing the parameters of price and sticker shock term to take any value negative or positive we detect abnormal behaviors in the tourist demand not only is the negative relationship between price and demand inverted for some people but also some tourists might be willing to accept higher than expected prices the non well behaved groups shares are estimated

contests for ranks experimental evidence we use experiments to analyze multiple dimensions of the relationship between rank incentives and individual performance in our experiment i rank is defined as subjects relative position in their group based on their performance in a real effort task and ii subjects earnings are independent of their performance we find that any rank incentive improves mean performance than no rank incentive and this result is independent of the group size in the large group the mean performance increases strictly in all except at the highest rank incentive but in the small group the mean performance increases weakly in rank incentives finally the mean performance is significantly higher in the large than in the small group because of a higher prestige effect in additional treatments in which we do not reveal the identity of the statusprize winners we find that average performance is identical to that in the baseline treatment without any status prizes the last result signifies the important role that public revelation plays to enhance the strength of status the results are important for managerial practices

price competition when consumer behavior is characterized by conformity or vanity it has long been recognized that the pleasure of consuming a good may be affected by the consumption choice of other consumers in some cases social pressures may lead to conformity in some others individuals may feel the need of exclusiveness under the form of vanity such externalities have proven to be important in several markets however the market implication of these externalities are still unclear to investigate them we propose to combine the consumption externality model and the spatial duopoly model when conformity is present but not too strong both firms remain in business but price competition is fiercer and results in lower prices the market share of the large firm increases with the population size as the population keeps rising the large firm may serve the entire market and set a price that has the nature of a limit price when conformity is strong enough different equilibria may exist in most of these equilibria a single firm captures the whole market at the other extreme when vanity is at work price competition is relaxed

understanding the solar home price premium electricity generation and green social status this study uses a large sample of homes in the san diego area and sacramento california area to provide some of the first capitalization estimates of the sales value of homes with solar panels relative to comparable homes without solar panels although the residential solar home market continues to grow there is little direct evidence on the market capitalization effect using both hedonics and a repeat sales index approach we find that solar panels are capitalized at roughly a 3 5 premium this premium is larger in communities with a greater share of college graduates and of registered prius hybrid vehicles

signaling status the impact of relative income on household consumption and financial decisions this paper investigates the importance of status in household consumption and credit decisions using data from the survey of consumer finances linked to tract level data in the american community s

multi period pricing in the presence of competition and social influence abstract this paper examines single and dynamic pricing policies of two competing firms over two periods in the presence of social influence assuming two firms adopt the same pricing policy we find that under either pricing policy firm profits always decrease with the degree of social influence firms prefer dynamic pricing policy when social influence is either relatively weak or sufficiently strong for firms under dynamic pricing policy to set zero prices in the first period otherwise single pricing policy is more preferable the conclusions are similar when the market size varies over periods except that dynamic pricing policy is always more profitable if the market size in period 2 is sufficiently large we have further compared the two pricing policies with posted pricing policy the results show that dynamic pricing policy dominates when social influence is relatively weak while posted pricing policy dominates when social influence is sufficiently strong because of the synergy between social influence and the reference price effect finally when each firm freely chooses either single or dynamic pricing policy we find that if the degree of social influence is relatively small two asymmetric equilibria exist where two firms adopt different pricing policies if the degree of social influence is very large however the unique equilibrium is both firms adopting dynamic pricing policy these findings provide important implications for firms to make more informed pricing decisions in an increasingly competitive environment with strong social influence

capital stock management during a recession that freezes credit markets abstract this paper considers the problem of how to price a conspicuous product while maintaining liquidity during a recession which both reduces demand and freezes credit markets reducing price would help maintain cash flow but low prices can erode brand image and hence long term sales the paper extends earlier work of the same authors by explicitly deriving a firm s optimal cash management behavior taking into account that a too low cash level results in bankruptcy there are different sets of initial conditions for which qualitatively different solution trajectories are optimal we distinguish mild and severe recessions with mild recessions bankruptcy can be avoided for sure when the brand image is large enough in case the recession is of intermediate strength it can be optimal to throttle forward then back how aggressively one spends down cash reserves with the associated state constraint alternately being non binding binding non binding then binding in such a way that the firm ceases operation

modelling inbound international tourism demand in small pacific island countries abstractin this study we estimate inbound international tourism demand models at the individual source market destination and overall destination levels for fiji cook islands tonga and vanuatu f

veblen effects political representation and the reduction in working time over the 20th century abstract we explain the substantial decline in work hours over the 20th century by the joint influence of the employees pecuniary emulation of the conspicuous consumption of top income earners and the balance of political power of employers and employees in the presence of conflicts of interest over the issue of working time we present a new labor discipline model incorporating veblen effects in which hours are determined by employers and subject to complete contracts but employee work effort is not we show that while veblen effects increase the hours sought by employees the hours selected by profit maximizing employers may exceed that preferred by employees who may then seek to reduce work hours by means of collective bargaining or governmental intervention we also identify conditions under which employees will prefer longer hours than offered by employers using newly available data on top income shares and on work hours from 10 major industrial economies and covering the entire past century we test two hypotheses that increases in the relative incomes of the very rich are associated with increased hours while increases in the political representation of workers have the opposite effect the estimated effects are large in economic magnitude highly significant and robust to alternative econometric specifications including country and time fixed effects using an alternative data set covering the last third of the past century we show that these results are robust to the inclusion of a measure of taxation and find that decentralized trade union bargaining but not centralized bargaining may raise working hours

social status entry and predation the case of british shipping cartels 1879 1929 the authors incorporate social status and regional affiliation two variables of central sociological interest into an economic analysis of entry and predation they build on scott morton s 1997 examination of entry and predation in the merchant shipping industry and examine whether the social status of an entrant owner impacts on the predation behavior of the incumbent cartels they find that high social status entrants are significantly less likely 40 to be preyed upon than the low social status entrants they discuss several interpretations of this result subsequent analysis supports the hypothesis that cartel members use social status as an indicator of an entrant s propensity to be a cooperative cartel participant

crime and conspicuous consumption we study how property crime distorts consumption decisions using an incomplete information model we argue that consuming conspicuous goods reveals information to criminals seeking bountiful victims and increases the likelihood of being victimized thus property crime reduces the consumption of visible goods even when these cannot be directly stolen but simply carry information about a potential victim s wealth we exploit the large decline in property crime in the u s during the 90s to test this mechanism using data from the u s consumer expenditure survey from 1986 to 2003 we find that households located in states experiencing sharper reductions in property crime increased significantly their consumption of visible goods even when these goods are not generally stolen both in absolute terms and relative to other consumption goods our findings hold when we instrument the decline in property crime during the 90s using a variety of strategies

pre match investment with frictions the paper explores an environment in which agents are motivated to make unproductive investments with the sole aim of improving their matching opportunities in contrast to existing work i add frictions by allowing the investment to be imperfectly observed the analysis allows for a deeper understanding of the trade off inherent in related models investments waste resources but facilitates more efficient matching patterns i show that greater frictions i do not always lead to inferior matching patterns and ii can force the economy into to a pareto preferred equilibrium

signalling inequality and the social structure this paper proposes a theory of endogenous transmission of social status through signalling in the labour market a signalling game is analysed in which education acting as a signalling good determines one s position in society the economy s degree of inequality is shown to be a determinant of whether a society is aristocratic where high income is the source of social standing or meritocratic bestowing status on high ability each social structure shows a different balance between production efficiency and social factors such as equality or mobility

conspicuous consumption snobbism and conformism abstract we develop a model in which consumers purchase a conspicuous good in order to signal high income and thereby achieve greater social status in equilibrium the signalling value of conspicuous consumption depends in an identifiable way on the number of consumers and consumer behaviour is characterized by either snobbism or conformism the market demand curve for the conspicuous good may exhibit a positive slope if consumers are conformist we derive some unconventional policy implications concerning the taxation of luxuries and the voluntary provision of public goods

selling to conspicuous consumers pricing production and sourcing decisions consumers often purchase goods that are hard to find to conspicuously display their exclusivity and social status firms that produce such conspicuously consumed goods such as designer apparel fashion goods jewelry etc often face challenges in making optimal pricing and production decisions such firms are confronted with precipitous trade off between high sales volume and high margins because of the highly uncertain market demand strategic consumer behavior and the display of conspicuous consumption in this paper we propose a model that addresses pricing and production decisions for a firm using the rational expectations framework we show that in equilibrium firms may offer high availability of goods despite the presence of conspicuous consumption we show that scarcity strategies are harder to adopt as demand variability increases and we provide conditions under which scarcity strategies could be successfully adopted to improve profits finally to credibly commit to scarcity strategy we show that firms can adopt sourcing strategies such as sourcing from an expensive production location supplier or using expensive raw materials this paper was accepted by preyas desai and pradeep chintagunta marketing

veblen effects in a theory of conspicuous consumption the authors examine conditions under which veblen effects arise from the desire to achieve social status by signaling wealth through conspicuous consumption while veblen effects cannot ordinarily arise when preferences satisfy a single crossing property they may emerge when this property fails in that case budget brands are priced at marginal cost while luxury brands though not intrinsically superior are sold at higher prices to consumers seeking to advertise wealth luxury brands earn strictly positive profits under conditions that would with standard formulations of preferences yield marginal cost pricing the authors explore factors that induce veblen effects and they investigate policy implications copyright 1996 by american economic association

status effects and negative utility growth this paper explains the observed stagnation of happiness measures through a growth model in which agents care about conspicuous consumption normal goods confer direct utility while status goods confer utility only at the expense of others firms can improve the quality of both goods through r d the nash equilibrium of the consumer game results in the share of expenditure on status goods increasing with the number of times the status good has been improved as the economy grows resources for innovation are transferred entirely to status good r d the resulting long run rate of utility growth is negative

why do people care about social status abstract this paper shows that complementary interaction can induce people to care about social status because it serves as a signal of non observable abilities there is a unique separating equilibrium in which everyone cares about social status in this equilibrium a person s social status perfectly reveals his abilities and everyone matches with a person of like ability the analysis shows that people s instrumental concern for social status has important welfare and policy implications indeed peoples efforts to keep up with the joneses may be welfare enhancing

do coffee roasters benefit from high prices of green coffee abstract the german coffee industry has repeatedly made the puzzling statement that it would prefer higher prices of green coffee its main input likewise it supported the maintenance of the coffee tax in this paper an oligopoly model with differentiated products is used to illustrate the possibility of profit raising cost increases the relationship between prices and costs of roasted coffee in germany is estimated and the hypothesis of overshifting is tested in addition the demand for coffee is studied however the empirical analysis does not confirm that increasing costs lead to higher profits alternative explanations for the coffee industry s statements based on long term considerations are also discussed