Genuine Saving and Conspicuous Consumption

By: Aronsson, Thomas (Department of Economics, Umeå School of Business and Economics, Umeå University,) ; Johansson-Stenman, Olof (Department of Economics, School of Business, Economics and Law, Göteborg University)
Much evidence suggests that people are concerned with their relative consumption, i.e., their own consumption relative to that of others. Yet, conspicuous consumption and the corresponding social costs have so far been ignored in savings-based indicators of sustainable development. The present paper examines the implications of relative consumption concerns for measures of sustainable development by deriving analogues to genuine saving when people are concerned with their relative consumption. Unless the positional externalities have been fully internalized, an indicator of such externalities must be added to genuine saving to arrive at the proper measure of intertemporal welfare change. A numerical example based on U.S. and Swedish data suggests that conventional measures of genuine saving (which do not reflect conspicuous consumption) are likely to largely overestimate this welfare change. We also show how relative consumption concerns affect the way public investment ought to be reflected in genuine saving.
Keywords: Welfare change; investment; saving; relative consumption
JEL: D03 D60 D62 E21 H21 I31 Q56

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