DURABLE CONSUMPTION AS A STATUS GOOD: A STUDY OF NEOCLASSICAL CASES

provided by Research Papers in Economics

Durable Consumption as a Status Good: A Study of
Neoclassical Cases

Walter H. Fisher*

November 2003

Abstract

In this paper we extend the representative agent model of the consumer to in-
corporate durable consumption goods that generate status, where status depends on
relative consumption. The analysis is done in the neoclassical context. In the closed
economy framework both endogenous and fixed employment cases are considered. A
small open economy version of the model is also developed. We derive the intertem-
poral equilibria and establish that in all instances they are saddlepoint stable. Among
our principle results, we show in the closed economy context with endogenous work
effort that an increase in the degree of status preference raises durable consumption,
its stock, employment, and physical capital. These results extend, in general, to the
small open economy.

JEL Codes: D9, E21

Key Words: Status Seeking, Durable Consumption, Relative Consumption

‘Department of Economics and Finance, Institute for Advanced Studies (IHS), Stumper-
gasse 56, A-1060 Vienna, Austria (Ph: +43-159991-253; Fax: -555, Email: fisher@ihs.ac.at; URL:
www.ihs.ac.at/~fisher). Fisher acknowledges the useful advice and suggestions of Franz X. Hof and the
generous financial support of the Oesterreichische Nationalbank (OeNB) (Jubiiaumsfondprojekt Nr. 8701).

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