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



derivatives in (2.12a, b) are interpreted as follows: an increase in stock of durable con-
sumption
a lowers its current level c. Indeed, as we show in the appendix, an increase in a
lowers c by one-for-one. In addition, current durable consumption depends negatively the
marginal utility of wealth μ and positively on the shadow value of the stock of durable
consumption
φ. Regarding the short-run response of work effort, (2.12b) indicates an in-
crease in the shadow value μ raises work e
ffort. Moreover, a given increase in the capital
stock
к also encourages labor supply, since Fkι > 0, which is implied by constant returns
to scale production technology.

From the equations (2.11), (2.8b), (2.10d) and (2.8c), we state the independent dy-
namics of the economy:

φ =(1+ β + δ) φ - μ,                       (2.13a)

cl = c (a, μ, φ) δa,                               (2.13b)

μ = μ [β Fk (к, I (μ, к))] ,                           (2.13c)

к = F [(к, I (μ, к)) c (a, μ, φ)] ,                          (2.13d)

where we have substituted for I = I (к, μ) in (2.13c, d) and c = c (α,μ, φ) in (2.13b, d),
respectively. Letting
φ = a = μ = к = 0, the long-run equilibrium equals:

Uc [(1+ δ) α,s (1)] + U 1(1 + 1α,/. '(1) =(β + δ)φ        (2.14a)

(1 δ ) a

V' (Z) = (1 + β + δ) φFι (k, Zj ,                        (2.14b)

Fk (k, k) = β,

(2.14c)




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