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

fiscal policies in the world economy this paper uses a two country general equilibrium model of the world economy in order to analyze the effects of budget deficits and government spending on world rates of interest consumption and international indebtedness it demonstrates the difference between the effects of fiscal expenditures and tax cuts as well as between the effects of current policies and expected future policies it is shown that the qualitative effects of fiscal policies depend on whether the country introducing the policies runs a surplus or a deficit in its current account following the positive analysis of the short run and the steady state effects the paper concludes with a normative analysis of the welfare implications of budget deficits

impairment of monetary autonomy case of trilemma vs duo abstract in a unified framework comprising 33 diverse economies this study investigates the role of flexible exchange rate regime vis a vis capital controls in providing insulation against monetary autonomy impairment we find both of them to be equally effective we also investigate the debate between the mundellian trilemma and the duo our findings show that in the presence of capital openness the flexible exchange rates restrict autonomy impairment only at the shorter horizon of 3 months not at the longer horizon of 12 months

long run welfare under externalities in consumption leisure and production a case for happy degrowth vs unhappy growth in this paper we contribute to the debate on the relationship between growth and well being by examining an endogenous growth model where we allow for externalities in consumption leisure and production we analyze three regimes a decentralized economy where each household makes isolated choices without considering their external effects a planned economy where a myopic planner fails to recognize both leisure and consumption externalities but recognizes production externalities and a planned economy with a fully informed planner we first compare the balanced growth paths under the three regimes and then we numerically investigate the transition to the optimal balanced growth path we provide a number of findings first in a decentralized economy growth or labor or both are greater than in the regime with a fully informed planner and hence are sub optimal from a welfare standpoint second a myopic intervention which overlooks consumption and leisure externalities leads to more growth and labor than in both the decentralized and the fully informed regime third we provide a case for happy degrowth a transition to the optimal balanced growth path that is associated with downscaling of production a reduction in private consumption and an ongoing increase in leisure and well being

risk aversion uncertainty and monetary policy in zero lower bound environments bekaert et al 2013 show that a lax monetary policy decreases both risk aversion and uncertainty and that shocks to risk aversion and uncertainty induce changes in monetary policy we extend their analysis for the pre crisis period to the post crisis period by using a shadow short rate as a proxy for unconventional monetary policies in zero lower bound environments we find that the empirical link between monetary policy risk aversion and uncertainty found in bekaert et al 2013 persists even in the post crisis period but the link is uncovered only when the shadow short rates are used to measure the monetary policy stance

tax policy and aggregate demand management under catching up with the joneses this paper examines the role for tax policies in productivity shock driven economies with catching up with the joneses utility functions the optimal tax policy is shown to affect the economy countercyclically via procyclical taxes i e cooling down the economy with higher taxes when it is overheating in booms and stimulating the economy with lower taxes in recessions to keep consumption up thus models with catching up with the joneses utility functions call for traditional keynesian demand management policies but for rather unorthodox reasons

relative wealth status seeking and catching up abstract according to our studies if relative wealth appears in the reduced form utility function for example because of status seeking then the poor will catch up with the rich if the elasticity of marginal utility of relative wealth is greater than the elasticity of marginal utility of consumption we give sufficient conditions for the final distribution of wealth to be independent of the initial distribution and conditions for saddlepoint stability in a two class model

tax evasion on a social network abstract we relate tax evasion behavior to a substantial literature on social comparison in judgements taxpayers engage in tax evasion as a means to boost their expected consumption relative to others in their social network the unique nash equilibrium of the model relates optimal evasion to a bonacich measure of network centrality more central taxpayers evade more given that tax authorities are now investing heavily in big data tools that aim to construct social networks we investigate the value of acquiring network information we do this using networks that allow for celebrity taxpayers whose consumption is seen widely and who are systematically of higher wealth we show that there are pronounced returns to the initial acquisition of network information especially in the presence of celebrity taxpayers

keeping up with the ageing joneses in this paper we consider the implications of relative consumption externalities in the blanchard yaari overlapping generations framework unlike most of the macroeconomic literature that studies this question the differences between agents and thus in their relative position persist in equilibrium we show in our fixed employment model that consumption externalities lower consumption and the capital stock in long run equilibrium a result in sharp contrast to the recent findings of liu and turnovsky 2005 in addition we solve for the intertemporal path of the economy to investigate its response to demographic shocks specifically to permanent changes in the birth and death rates

behavioral spillover effects from a social information campaign abstract we investigate whether a social information campaign aimed at reducing water use causes a spillover effect on the use of electricity on average water use decreased by 6 percent for the treatment group we identify a positive spillover effect on electricity use among households that had efficient use of water before the campaign the effect is sizeable almost a 9 percent reduction we argue that these results are consistent with a model of cognitive dissonance where the efficient households infer information about electricity use from the water use information

social comparisons and contributions to online communities a field experiment on movielens we design a field experiment to explore the use of social comparison to increase contributions to an online community we find that after receiving behavioral information about the median user s total number of movie ratings users below the median demonstrate a 530 percent increase in the number of monthly movie ratings while those above the median decrease their ratings by 62 percent when given outcome information about the average user s net benefit score above average users mainly engage in activities that help others our findings suggest that effective personalized social information can increase the level of public goods provision

status the distribution of wealth and growth we analyze a simple model of endogenous growth in which individuals care about both consumption and their rank in the distribution of wealth we show that the steady growth rate of the economy increases with both the strength of the status seeking motive and the initial equality of the wealth distribution contrary to the basic model of endogenous growth the equilibrium growth rate is not necessarily smaller than in the social optimum and we identify the circumstances under which the two coincide

the dynamic eects of monetary policy a structural factor model approach we use the structural factor model proposed by forni giannone lippi and reichlin 2007 to study the eects of monetary policy the advantage with respect to the traditional vector autoregression model is that we can exploit information from a large data set made up of 112 us monthly macroeconomic series monetary policy shocks are identified using a standard recursive scheme in which the impact eects

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

merit approbation and the evolution of social structure in this paper we study a society in which individuals gain utility from income and from social approbation income is correlated with class approbation is given to an unobservable trait which must be signalled through the agent s social mobility i e class change mobility is driven by a simple mechanism involving inheritance effort and ability thus social structure class composition is affected by individuals quest for approbation and we study how that affects the emergence and multiplicity of long run social organizations including hybrid forms of dynasties and meritocracies specifically we observe that even though social mobility is driven purely by a meritocratic mechanism pure dynasties can emerge we then introduce a feedback between the size of the upper class and its income value so that effort levels and social structure are jointly endogenous we derive results on equilibrium effort levels and stationary when they exist social structures social organization can converge to a unique steady state multiple long run equilibria or cycles

relativity rank and the utility of income relative utility has become an important concept in several disjoint areas of economics i present a cardinal model of income utility based on the supposition that agents care about their rank in the income distribution and that utility is subject to adaptation over time utility levels correspond to the leyden individual welfare function while utility differences yield a version of the prospect theory value function thereby providing a new and shared derivation of each i offer an explanation of some long standing paradoxes in the wellbeing literature and an insight into the links between relative comparisons and loss aversion

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

the great moderation in international capital flows a global phenomenon abstract this paper highlights a recent great moderation in global capital flows characterised by smaller volumes and lower volatility of cross border transactions however there are substantial differences across countries and regions which we analyse by comparing the level of international capital flows observed in 2005 06 immediately prior to the onset of the global financial crisis to the post crisis period of 2013 14 when global flows arguably settled at a new normal we find that since the pre crisis period gross capital inflows recovered more for economies with smaller pre crisis external and internal imbalances lower per capita income improving growth expectations a less severe impact of the global financial crisis and less stringent macroprudential policy on the asset side countries with a more accommodative monetary policy a milder impact of the crisis and oil exporters managed to increase gross capital outflows in the post crisis period

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

has the fed fallen behind the curve evidence from var models we evaluate the role of us monetary policy in shaping inflation and economic activity by means of a medium scale bayesian var model where the zlb and the unconventional measures are addressed by using a shadow interest rate the historical decomposition and a conditional forecast scenario show that the fed s stance is in line with gdp and inflation dynamics moreover core inflation will likely lie below its target in 2017

the evolution of engel curves and its implications for structural change theory the tendency for expenditure engel curves to flatten out at high income levels is frequently cited as evidence that major shifts in household spending patterns take place as households become more affluent empirically little has been done to examine i how pervasive this tendency is across the engel curves of different goods and services ii whether the rate at which engel curves flatten out may significantly change over time and iii how robust engel curves are in the face of changes in the income distribution of households using data from the uk family expenditure survey we find evidence that the tendency for engel curves to flatten out which we dub saturation is indeed widespread across a wide range of goods and services however a tendency for their shape to shift over time and for these shifts to co move with changes in the income distribution of households casts some doubt on whether the declining slope of engel curves can be used to predict slowdowns in the growth rate of demand for particular goods and services

external shocks u s monetary policy and macroeconomic fluctuations in emerging markets estimated structural vars show that external shocks are an important source of macroeconomic fluctuations in emerging markets furthermore u s monetary policy shocks affect interest rates and the exchange rate in a typical emerging market quickly and strongly the price level and real output in a typical emerging market respond to u s monetary policy shocks by more than the price level and real output in the u s itself these findings are consistent with the idea that when the u s sneezes emerging markets catch a cold at the same time u s monetary policy shocks are not important for emerging markets relative to other kinds of external shocks

saving babies revisiting the effect of very low birth weight classification we reconsider the effect of very low birth weight classification on infant mortality we demonstrate that the estimates are highly sensitive to the exclusion of observations in the immediate vicinity of the 1 500 g threshold weakening the confidence in the results originally reported in almond doyle kowalski and williams 2010

the social contingency of wants abstract economic models typically assume that individual wants are determined by forces exogenous to the economic system social psychology and consumer research in contrast support the view that the perceived benefits of goods and services are strongly affected by endogenously determined social norms we present a selective overview of the literature on the relationship between consumption and well being exploring the ways in which informal arguments from social science might be linked to formal models of economic behavior we find that the fixed preferences hypothesis leads to the systematic undervaluation of environmental services and the underprovisioning of environmental goods

to bi or not to bi differences between spillover estimates from bilateral and multilateral multi country models abstract asymptotic analysis and monte carlo simulations show that spillover estimates obtained from widely used bilateral such as two country var models are in general less accurate both in terms of bias and mean squared error than those obtained from multilateral such as global var models in particular the accuracy of spillover estimates obtained from bilateral models depends on two aspects of economies integration with the rest of the world first accuracy worsens as direct bilateral transmission channels become less important for example when the spillover sender accounts only for a small share of the spillover recipient s overall integration with the rest of the world second accuracy worsens as indirect higher order spillovers and spillbacks become more important for example when the spillover recipient is more integrated with the rest of the world overall empirical evidence on the global output spillovers from us monetary policy is consistent with these generic results spillover estimates obtained from two country var models are systematically smaller than those obtained from a global var model and the differences between spillover estimates obtained from two country var models and a global var model are more pronounced for economies for which the us accounts for a smaller share of their overall trade and financial integration with the rest of the world and for economies which are more integrated with the rest of the world overall

the effects of the fed s monetary tightening campaign on nonbank mortgage lending abstract we examine the response of mortgage credit volumes to the fed s planned monetary tightening campaign of continued policy rate increases and slowed future purchases of agency securitized mortgages a shadow policy rate measures unconventional policy tools used at the zero lower bound after the great recession our results from a time varying parameter factor augmented var model show that a policy rate increase identified with sign restrictions shifts mortgage lending from banks to less regulated nonbanks more mortgage funding comes from increased issuance of agency rather than private label securitized mortgages

optimal taxation when consumers have endogenous benchmark levels of consumption i examine optimal taxes in an overlapping generations economy in which each consumer s utility depends on consumption relative to a weighted average of consumption by others the benchmark level of consumption as well as on the level of the consumer s own consumption the socially optimal balanced growth path is characterized by the modi ed golden rule and by a condition on the intergenerational allocation of consumption in each period a competitive economy can be induced to attain the social optimum by a lump sum pay as you go social security system and a tax on capital income

the interest rate pass through in the euro area during the sovereign debt crisis abstract we investigate the pass through of monetary policy to bank lending rates in the euro area during the sovereign debt crisis in comparison to the pre crisis period we make the following contributions first we use a factor augmented vector autoregression which allows us to assess the responses of a large number of country specific interest rates and spreads second we analyze the effects of monetary policy on the components of the interest rate pass through which reflect banks funding risk including sovereign risk and markups charged by banks over funding costs third we not only consider conventional but also unconventional monetary policy we find that while the transmission of conventional monetary policy to bank lending rates has not changed with the crisis the composition of the pass through has changed specifically expansionary conventional monetary policy lowered sovereign risk in peripheral countries and longer term bank funding risk in peripheral and core countries during the crisis but has been unable to lower banks markups this was not or not as much the case prior to the crisis unconventional monetary policy helped decreasing lending rates mainly due to large shocks rather than a strong propagation

on the rationality of mutually immiserating coercion abstract the pursuit of relative advantage in a setting where one person has power over another may yield perfectly rational decisions by the person in power which reduce the wealth of all affected parties including the person in power this contrasts with decisions by independent egoistic decision makers who in a similar circumstances will not pursue transfers when they are known to cost more to obtain than would be realized utility functions that include relative wealth or position as arguments have the property that utility increases as relative wealth increases consequently mutually immiserating policies may be rationally undertaken if they yield sufficient relative advantage to offset absolute wealth reductions

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

examining asymmetries in the transmission of monetary policy in the euro area evidence from a mixed cross section global var model abstract i estimate the transmission of a common euro area monetary policy shock across individual euro area economies to do so i develop a global var model in which all euro area economies are included individually while at the same time their common monetary policy is modelled as a function of euro area aggregate output growth and inflation the results suggest that the transmission of monetary policy across euro area economies displays asymmetries and that in line with economic theory these are driven by differences in economies structural characteristics in particular euro area economies in which a higher share of aggregate output is accounted for by sectors servicing interest rate sensitive demand exhibit a stronger transmission of monetary policy to real activity similarly even though the evidence is less conclusive euro area economies which feature more real wage and or fewer unemployment rigidities also appear to display a stronger transmission of monetary policy to real activity

on relative wealth effects and the optimality of growth abstract we present a model of endogenous growth in which a desire for social status lead individuals to care about their relative wealth the growth rate of the economy is socially optimal if the status motive is sufficiently important but the presence of status seeking may also lead to excessive growth

what lies beneath a time varying favar model for the uk transmission mechanism we use a time varying factor augmented var to investigate changes in the transmission mechanism of economic shocks in the uk our estimates demonstrate the importance of time variation and suggest that monetary policy shocks had a bigger impact on inflation equity prices and the exchange rate during the inflation targeting period changes in the transmission of policy shocks to bond yields point to more efficient management of long run inflation expectations finally we investigate responses of disaggregated prices with the median becoming more negative and cross sectional patterns consistent with a decrease in the role of cost channels

population ageing and pension reform in a small open economy with non traded goods in this paper we study the implications of population ageing in an economy with a sizeable non traded goods sector to this effect a highly stylized micro founded macro model is constructed in which the age structure of the population plays a non trivial role the model distinguishes separate birth and death probabilities thus allowing for net population change allows for age dependent labour productivity thus mimicing life cycle saving and includes a rudimentary pension system thus allowing for intergenerational redistribution the model is used to analytically study demographic and pension shocks

business cycle transmission from the us to germany a structural factor approach abstract this paper investigates the transmission of us macroeconomic shocks to germany using a large dimensional structural dynamic factor model this framework allows us to investigate many transmission channels simultaneously including new channels such as stock markets foreign direct investment bank lending and the confidence channel we find that us shocks affect the us and germany largely symmetrically trade seems to be the most relevant transmission channel monetary policy reactions to strong price movements seem to play a role as well no clear conclusion can be drawn yet on the role of financial markets and the confidence channel negative domestic influences apparently more than offset positive us influences in the german economy between 1995 and 2000 but the us recession in 2001 appeared to be the main culprit in the german slump

trade and business cycle synchronization in oecd countries a re examination this paper re examines the relationship between trade intensity and business cycle synchronization for 21 oecd countries in the period 1970 2003 instead of using instrumental variables we estimate a multivariate model including variables capturing specialization and similarity of economic policies we confirm that trade intensity affects synchronization but the effect is much smaller than previously reported other factors like specialization and convergence in monetary and fiscal policies have a similar impact on business cycle synchronization as trade intensity the effect of trade on synchronization is not driven by outliers however the impact of trade on synchronization is not robust across deciles c 2007 elsevier b v all rights reserved

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

monetary policy expectations at the zero lower bound we show that conventional dynamic term structure models dtsms estimated on recent u s data severely violate the zero lower bound zlb on nominal interest rates and deliver poor forecasts of future short rates in contrast shadow rate dtsms account for the zlb by construction capture the resulting distributional asymmetry of future short rates and achieve good forecast performance these models provide more accurate estimates of the most likely path for future monetary policy including the timing of policy liftoff from the zlb and the pace of subsequent policy tightening we also demonstrate the benefits of including macroeconomic factors in a shadow rate dtsm when yields are constrained near the zlb

health income and relative deprivation evidence from the bhps it is believed that income affects health directly but it is argued that indirect income effects due to relative deprivation may be equally important this paper investigates these relationships using parametric and semiparametric panel data models which ameliorate problems of misspecification and unobservable heterogeneity by allowing for a flexible functional form of income we ensure that coefficients on relative deprivation variables are not an artefact of a highly non linear relationship between health and income the results provide strong evidence for the impact of income on self reported measures of health for men and women these results are robust across a range of techniques and are resilient to the inclusion of measures of relative deprivation the parametric results for relative deprivation largely reject its influence on health although there is some evidence of an effect in the semiparametric models

the effectiveness of conventional and unconventional monetary policy evidence from a structural dynamic factor model for japan abstract i investigate the effectiveness of both conventional and unconventional japanese monetary policy measures targeting either the short term interest rate or the monetary base using a 1985 2014 data set covering 135 variables the analysis is based on a structural dynamic factor model an expansionary monetary policy shock identified via theoretically plausible sign restrictions is found to significantly increase real and nominal economic activity with regard to the policy instrument its effectiveness differs a shock that decreases the short term interest rate has a strong positive effect on output and a modest effect on prices a monetary policy shock that raises the monetary base has a positive but weak and rather transitory effect on output and a strong effect on goods and stock prices

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

a comparative assessment of the spillovers of us monetary policy shocks and its mitigation abstract we conduct a comparative assessment of the spillovers of three types of fed s monetary policy surprises i e fed funds rate ffr forward guidance fg and large scale asset purchases lsap on monetary autonomy in the periphery economies pes we find these shocks to be significant in causing loss of monetary autonomy in the pes we also find that the macroprudential tools mitigate the degree of such impairment this holds for two types of macroprudential policies i e borrower targeted and financial institutions targeted we find both of them to be most effective against the ffr shocks comparing the macroprudential tools we find the financial institutions targeted tools to be more effective than the borrower targeted ones in mitigating the degree of impairment against all types of fed shocks

positional deprivation and support for radical right and radical left parties we explore how support for radical parties of both the left and right may be shaped by what we call positional deprivation where growth in income of individuals at a given point in the income distribution is outpaced by income growth elsewhere in that distribution we argue that positional deprivation captures the combination of over time and relative misfortune that can be expected to distinctly spur support for radical left and right parties we explore this possibility by matching new measures of positional deprivation to individual level survey data on party preferences in 20 european countries from 2002 to 2014 we find that positional deprivation is robustly correlated with supporting radical populist parties first positional deprivation generally measured as average income growth across deciles of a country s income distribution minus a respondent s own decile s growth is associated with respondents retreat from mainstream parties and with support for both radical right and particularly radical left parties second positional deprivation relative to the highest and the lowest ends of the income spectrum play out differently for radical right and for radical left support a respondent s positional deprivation relative to the wealthiest decile s growth in his or her country tends to spur support for radical left but not radical right parties in contrast positional deprivation relative to the poorest decile s growth in a respondent s country tends to spur support for radical right but not left parties the results suggest that the combination of over time and relative economic misfortune may be key to how economic experience shapes radical backlash of the left and right

jealousy and equilibrium overconsumption the idea that the happiness of an individual depends upon the consumption of others is widely viewed as an important feature of our shared social existence recent research in finance has used this idea through consumption externalities to explore asset pricing anomalies consumption externalities potentially break the link between pareto optimality and competitive equilibria and open the door for beneficial government intervention e g lars ljungqvist and harald uhlig 2000 in this paper we delineate two effects that a consumption externality may have an increase in aggregate consumption may a raise the marginal utility of individual consumption relative to leisure and or b lower an individual s utility level we refer to a as keeping up with the joneses henceforth kuj following jordi gali 1994 and we refer to b as jealousy jealousy is a distinct concept from kuj under kuj an individual derives greater utility from additional own consumption relative to leisure when others consume more at the same time higher per capita consumption holding fixed individual consumption can trigger either jealousy so that individual utility falls or admiration so that individual utility rises in section i of this paper we show that jealousy implies that the laissez faire equilibrium consumption level is greater than the optimal level whether preferences exhibit kuj is not necessary for this main result intuitively in the presence of jealousy consumption is similar to pollution overpollution exists because individuals do not take into account the cost of polluting on others not because an increase in economywide pollution makes the return to individual polluting higher similarly overconsumption exists because individuals do not take into account the negative effect of own consumption on jealous others things go in the opposite direction when individuals are admiring in section ii we consider a functional form that encompasses several existing models we show that jealousy determines the optimal tax to correct overconsumption and that kuj is mainly important for asset pricing

we are what we eat obesity income and social comparisons abstract the empirical evidence of a non monotone relation between income and obesity is not well explained we build a theoretical model combining income inequality and social comparisons to explain the link between income and obesity and study tax policy implications for fighting obesity we assume that differences in food consumption patterns between poor and wealthy households partly reflect positionality which is the concern for social status our key assumption is that positionality for low calorie food consumption is positively related to a country s wealth in this framework body weight outcomes reflect competing income and positionality effects yielding the following results we explain the link between average obesity rates and standards of living and suggest the existence of a kuznets curve for obesity in accordance with empirical evidence for cross sections of the population we explain the observed correlation between income and obesity which is positive in poor countries and negative in rich countries we find that increasing the relative cost of high calorie food is less effective at decreasing the relative weight of poor individuals in rich countries than in poor countries

the impact of health care reform on hospital and preventive care evidence from massachusetts in april 2006 massachusetts passed legislation aimed at achieving near universal health insurance coverage the key features of this legislation were a model for national health reform passed in march 2010 the reform gives us a novel opportunity to examine the impact of expansion to near universal coverage state wide among hospital discharges in massachusetts we find that the reform decreased uninsurance by 36 relative to its initial level and to other states reform affected utilization by decreasing length of stay the number of inpatient admissions originating from the emergency room and preventable admissions at the same time hospital cost growth did not increase

retirement pensions and ageing we study the effects of demographic shocks and changes in the pension system on the macroeconomic performance of an advanced small open economy facing a given world interest rate we construct an overlapping generations model which includes a realistic description of the mortality process individual agents choose their optimal retirement age taking into account the time and age profiles of wages taxes and the public pension system the early retirement provision in most pension systems acts as a trap inducing most workers to retire well before the normal retirement age simulations show that pension reform must be drastic for it to have any effects on the retirement behaviour of workers

positional concerns and social network structure an experiment abstract we experimentally study the positional concerns of individuals embedded in social networks in the game individuals compete for positional advantage with their direct neighbors by purchasing a positional good the nash equilibrium consumption is determined by the katz bonacich centrality of the individual s network position while the efficient outcome requires a lower consumption level for most network positions the gameplay converged to the nash equilibrium except for local centers that consumed less of the positional good than the nash prediction despite this the consumption of the positional good increased in the individual s centrality the evolution of the gameplay was explained by the myopic best response dynamics model

the effect of unionism on fringe benefits this study analyzes the impact of unionism on fringes paid to production workers using data on individual establishments it compares fringe expenditures in establishments having the same level of compensation per hour and finds that unionism raises the share of compensation allotted to fringes particularly to pensions vacation pay and life accident and health insurance in addition since unionism also raises the straight time wage rate itself a prime determinant of expenditures on fringes unionism has a very sizeable impact on total fringe expenditures as well as on the fringe share of compensation the union fringe effect exceeds in percentage terms the union wage effect and is sufficiently large to suggest that standard union wage studies understate the union effect on total compensation the study also compares the fringe expenditures of production and non production workers within the same establishment controlling for within establishment pay policies the findings suggest that the pres

diagram for a small planet the production and ecosystem possibilities curve abstract with the development of the gpi there is now an ecological alternative to gdp for measuring a country s economic performance but we still lack an ecological alternative to the ppc for illustrating a country s economic problem the diagram suggested here illustrates a country s production and ecosystem possibilities including climate stability flood control carbon sequestration aquifer recharge scenery recreation biological diversity and so on burning a rainforest to clear the land shifts a country s ppc outward giving the visual impression of an unmitigated improvement but such development causes a movement along the country s pepc as ecosystem services are transformed into gdp the slope of the pepc is the marginal rate of transformation which equals the ratio of the land s marginal marketable product to its marginal ecosystem product changes in technology create substitution and income effects that help explain the enclosure movement and the environmental kuznets curve much as employment of the human resource can be restrained to allow more leisure development of the natural resource can be restrained to preserve more ecosystem services commercial lobbying interests and rivalries for positional goods create distortions that move a country along its pepc to a materialistic misallocation with too little conservation an idealistic misallocation is also possible with too much preservation of the natural environment small is beautiful up to a point and that is evident in this diagram jacob viner s viner j 1937 studies in the theory of international trade harper and brothers new york analytical objections to the ppc are revived

monetary policy and rational asset price bubbles i examine the impact of alternative monetary policy rules on a rational asset price bubble through the lens of an olg model with nominal rigidities a systematic increase in interest rates in response to a growing bubble is shown to enhance the uctuations in the latter

the relative income hypothesis abstract despite its theoretical dominance the empirical case in favor of the permanent income hypothesis is weak contrary to one of its basic implications a growing body of evidence suggests that rich households save a higher proportion of their permanent income than poor households we propose an overlapping generations economy where households care about relative consumption as a result an individual s consumption is driven by the comparison of his lifetime income and the lifetime income of his reference group a permanent income version of duesenberry s 1949 relative income hypothesis across households the savings rate increases with income while aggregate savings are independent of the income distribution

do contractionary monetary policy shocks expand shadow banking summary using var models for the usa we find that a contractionary monetary policy shock has a persistent negative impact on the level of commercial bank assets but increases the assets of shadow banks and securitization activity to explain this waterbed effect we propose a standard new keynesian model featuring both commercial and shadow banks and we show that the model comes close to explaining the empirical results our findings cast doubt on the idea that monetary policy can usefully get in all the cracks of the financial sector in a uniform way

dynamic asset allocation with relative wealth concerns in incomplete markets abstract in dynamic portfolio choice problems stochastic state variables such as stochastic volatility lead to adjustments of the optimal stock demand referred to as hedge terms or merton breeden terms by deriving an explicit solution in a two agent framework with a stochastic opportunity set we show that relative wealth concerns give rise to new hedge terms beyond the ordinary ones this is because the agents hedge against both exogenous changes in the state variable and endogenous decisions of the other agent depending on the parametrization of the model these new terms can significantly change the investors hedging demands we also show that both heterogeneity in risk aversion or relative wealth concerns can have similar effects on the heterogeneity in portfolio decisions formally we study a non cooperative non zero sum stochastic differential game for which we prove a verification theorem in a setting with an unspanned state variable

balance of power and the propensity of conflict we study the role of an imbalance in fighting strengths when players bargain in the shadow of conflict our experimental results suggest in a simple bargaining game with an exogenous mediation proposal the likelihood of conflict is independent of the balance of power if bargaining involves endogenous demand choices however the likelihood of conflict is higher if power is more imbalanced even though endogenous bargaining outcomes reflect the players unequal fighting strengths strategic uncertainty causes outcomes to be most efficient when power is balanced in turn the importance of exogenous mediation proposals depends on the balance of power

relative consumption and tax evasion abstract relative consumption effects or status concerns that feature jealousy in the sense of dupor and liu 2003 boost consumption expenditure if consumption is financed by labour income such status considerations increase labour supply and hence the tax base a higher taxable income in turn can make tax evasion more attractive we show for various specifications of preferences that the tax base effect generally dominates consequently relative consumption effects tend to reduce tax evasion this is true irrespective of whether tax parameters are exogenous guarantee a balanced budget or are set optimally

environmental abatement and intergenerational distribution this paper employs an overlapping generations model to explore the impact of public abatement on private investment and the intergenerational distribution of welfare whereas public abatement benefits old generations in terms of non environmental welfare future generations gain most in terms of environmental welfare the overall benefits tend to be smallest for generations born at the time of the unanticipated policy shock public debt policy however can be employed to ensure that welfare gains are distributed more equally across the various generations such a policy implies that natural capital crowds out man made capital

keeping one step ahead of the joneses status the distribution of wealth and long run growth assuming that the utility of each agent depends on its relative wealth position in the society this chapter constructs an endogenous growth model it is shown that even if the subjective discount rates differ across agents there exists a unique balanced growth equilibrium in which each agent owns a positive share of the world wealth it is also shown that if the agents are identical then an increase in savings incentives always raises the long run growth rate but if they are heterogeneous then an increase in savings incentives may lower the long run growth rate

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

us monetary policy and the euro area abstract this study documents empirically that contractionary us monetary policy may generate short term expansionary spillover effects in individual euro area ea member countries economic activity increases mainly via the trade channel also domestic credit and stock markets expand highlighting the importance of the financial channel however the international repercussions are transitory and distributed unevenly within the ea the effect diminishes as ea interest rates increase with a few quarters delay while the effects are heterogenous and rather large before 1999 responses become more homogeneous and smaller in size after the implementation of the euro still country specific asymmetries remain

changes in the effects of monetary policy on disaggregate price dynamics abstract based on a time varying factor augmented vector autoregression we demonstrate that the propagation mechanism of monetary policy disturbances differs across disaggregate components of personal consumption expenditures while many disaggregate prices rise temporarily in response to a monetary tightening in the early part of the sample there is no evidence of a price puzzle at the aggregate level the share of disaggregate prices that exhibit the price puzzle diminishes from the early 1980s onwards there also is evidence of a substantial decline in the dispersion of disaggregate price responses over time this gradual decrease in cross sectional heterogeneity of disaggregate price responses is associated with a dampening effect on aggregate real economic activity and a stronger effect on the aggregate price level we illustrate by means of a multi sector sticky price model augmented by a cost channel how key structural parameters would have had to change to match this evolution of sectoral price dynamics

consumption externalities production externalities and efficient capital accumulation under time non separable preferences the effects of consumption and production externalities on economic performance under time non separable preferences are examined both theoretically and numerically we show that a consumption externality alone has long run distortionary effects if and only if labor is supplied elastically with fixed labor supply it has only transitional distortionary effects production externalities always generate long run distortions irrespective of labor supply the optimal tax structure to correct for the distortions is characterized we compare the implications of this model with those obtained when the consumption externality is contemporaneous while some of the long run effects are robust there are also important qualitative and quantitative differences particularly along transitional paths

comovements and heterogeneity in the euro area analyzed in a non stationary dynamic factor model this paper establishes stylized facts on comovements and heterogeneity of individual euro area countries output and price developments in the past two decades for this purpose a non stationary structural dynamic factor model is fitted to a large dataset of euro area macroeconomic variables the main results are as follows both common factors and idiosyncratic components are important in explaining individual countries output and price developments in the euro area and are also both very persistent idiosyncratic shocks and adjustments to these shocks are mainly responsible for cross country heterogeneity the asymmetric transmission of common shocks plays a minor role finally there is no strong evidence that some common shocks lead to greater heterogeneity than others copyright 2009 john wiley sons ltd

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

do premium tax credits increase private health insurance coverage evidence from the 2006 massachusetts health care reform i use the current population survey march supplement and a regression discontinuity design to demonstrate a positive impact of premium tax credits implemented as a part of the 2006 health reform in massachusetts on non group private health insurance coverage

social comparisons status and driving behavior abstract the establishment of desirable social norms is an integral part of a well functioning civil society while recent evidence has demonstrated that social comparison can affect behavior in a variety of contexts it is not clear what type of comparative social information is most effective using a large scale field experiment to study driving practices we sent text messages containing different types of social information to drivers in tsingtao china we find two types of social information to be particularly effective in reducing traffic violations the driving behavior of those similar to oneself and the driving behavior of those with high status cars our results indicate that the combination of descriptive norms with social status is a cost effective yet powerful intervention for establishing better driving behavior in emerging markets

a tie that binds revisiting the trilemma in emerging market economies this paper examines the claim that exchange rate regimes are of little salience in the transmission of global financial conditions to domestic financial and macroeconomic conditions by focusing on