On limiting the market for status signals
TL;DR: In this paper, the impacts of tax policy and benefits on the signalling equilibrium are considered, and the benefits of a Pareto-improving tax policy are discussed. But the authors do not consider the impact of tax on the signaling equilibrium.
About: This article is published in Journal of Public Economics.The article was published on 1994-01-01 and is currently open access. It has received 265 citations till now. The article focuses on the topics: Tax policy & Inefficiency.
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TL;DR: In this paper, the authors tried to test the hypothesis that utility depends on income relative to a "comparison" or reference level using data on 5,000 British workers and found that workers' reported satisfaction levels are inversely related to their comparison wage rates.
2,897Â citations
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TL;DR: In this article, the authors review the evidence on relative income from the subjective well-being literature and discuss the relation (or not) between happiness and utility, and discuss some nonhappiness research (behavioral, experimental, neurological) related to income comparisons.
Abstract: The well-known Easterlin paradox points out that average happiness has remained constant over time despite sharp rises in GNP per head. At the same time, a micro literature has typically found positive correlations between individual income and individual measures of subjective well-being. This paper suggests that these two findings are consistent with the presence of relative income terms in the utility function. Income may be evaluated relative to others (social comparison) or to oneself in the past (habituation). We review the evidence on relative income from the subjective well-being literature. We also discuss the relation (or not) between happiness and utility, and discuss some nonhappiness research (behavioral, experimental, neurological) related to income comparisons. We last consider how relative income in the utility function can affect economic models of behavior in the domains of consumption, investment, economic growth, savings, taxation, labor supply, wages, and migration.
2,239Â citations
TL;DR: In this paper, the authors review the evidence on relative income from the subjective well-being literature and discuss the relation (or not) between happiness and utility, and discuss some nonhappiness research (behavioral, experimental, neurological) related to income comparisons.
Abstract: The well-known Easterlin paradox points out that average happiness has remained constant over time despite sharp rises in GNP per head. At the same time, a micro literature has typically found positive correlations between individual income and individual measures of subjective well-being. This paper suggests that these two findings are consistent with the presence of relative income terms in the utility function. Income may be evaluated relative to others (social comparison) or to oneself in the past (habituation). We review the evidence on relative income from the subjective well-being literature. We also discuss the relation (or not) between happiness and utility, and discuss some nonhappiness research (behavioral, experimental, neurological) related to income comparisons. We last consider how relative income in the utility function can affect economic models of behavior in the domains of consumption, investment, economic growth, savings, taxation, labor supply, wages, and migration.
2,179Â citations
TL;DR: In this paper, a model of social interaction in which individuals care about status as well as "intrinsic" utility (which refers to utility derived directly from consumption) is presented.
Abstract: This paper analyzes a model of social interaction in which individuals care about status as well as "intrinsic" utility (which refers to utility derived directly from consumption). Status is assumed to depend on public perceptions about an individual's predispositions rather than on the individual's actions. However, since predispositions are unobservable, actions signal predispositions and therefore affect status. When status is sufficiently important relative to intrinsic utility, many individuals conform to a single, homogeneous standard of behavior, despite heterogeneous underlying preferences. They are willing to conform because they recognize that even small departures from the social norm will seriously impair their status. The fact that society harshly censures all nonconformists is not simply assumed (indeed, status varies smoothly with perceived type); rather, it is produced endogenously. Despite this penalty, agents with sufficiently extreme preferences refuse to conform. The model provides an ...
1,775Â citations
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TL;DR: This paper examined conditions under which "Veblen effects" arise from the desire to achieve social status by signaling wealth through conspicuous consumption, and explored factors that induce Veblen effect and investigated policy implications.
Abstract: 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.
974Â citations
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TL;DR: In this paper, a case where health (insurance) and education are supplied as social goods at (near) zero prices and funded from taxation is analyzed, where taxes or transferable vouchers influence the take-up of the social goods compared to alternatives available in a private market.
80Â citations
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TL;DR: In this paper, the optimal design of in-kind transfer self-selection schemes is analyzed and it is shown that when a charge can be levied for the transfer, an optimal scheme will nearly always raise welfare, while freely provided transfers are unlikely to improve upon optimal linear taxation alone.
Abstract: With in-kind transfer self-selection schemes, agents choose between a set level of public provision or buy freely from the private market. Housing, education, and healthcare are often of this form. The optimal design of these schemes is analyzed here. It is shown that when a charge can be levied for the transfer, an optimal scheme will nearly always raise welfare, while freely provided transfers are unlikely to improve upon optimal linear taxation alone. Surprisingly, optimal schemes may involve high or medium income agents receiving public expenditure, while those on the lowest incomes opt out. Copyright 1992 by Royal Economic Society.(This abstract was borrowed from another version of this item.)
50Â citations
TL;DR: In this article, the optimal design of in-kind transfer self-selection schemes is analyzed and it is shown that when a charge can be levied for the transfer, an optimal scheme will nearly always raise welfare, while freely provided transfers are unlikely to improve upon optimal linear taxation alone.
Abstract: With in-kind transfer self-selection schemes, agents choose between a set level of public provision or buy freely from the private market. Housing, education, and healthcare are often of this form. The optimal design of these schemes is analyzed here. It is shown that when a charge can be levied for the transfer, an optimal scheme will nearly always raise welfare, while freely provided transfers are unlikely to improve upon optimal linear taxation alone. Surprisingly, optimal schemes may involve high or medium income agents receiving public expenditure, while those on the lowest incomes opt out. Copyright 1992 by Royal Economic Society.
48Â citations
TL;DR: The tax consequences of Duesenberry's relative income hypothesis are investigated in this paper, where the authors consider only one-directional relativity, only the case where relativity applies to income but not leisure, and only the threeperson economy.
Abstract: Research by Frank [3; 4; 5], Van de Stadt, Kapteyn and Van de Geer [7], Layard [6], and Easterlin [2] suggests that the tax consequences of Duesenberry's relative income hypothesis [1] deserve investigation. The "relativity" hypothesis contends that when one person increases his income, he imposes utility losses on others. If the hypothesis is correct, then efficiency requires that each person confront a marginal tax rate that "internalizes the externality," so that each person bears a cost equal to the relativistic losses he generates. The structure of relativity determines the structure of efficient taxation. Duesenberry devotes almost a full chapter to the tax implications of relativity. This paper extends Duesenberry's seminal contribution. Duesenberry considers only "one-directional relativity," only the case where relativity applies to income but not leisure, and only the three-person economy. Our analysis of one-directional relativity considers the important case where relativity applies to leisure as well as income, and also considers the n-person economy. Moreover, our analysis considers several alternative relativity structures.
26Â citations