SFB 303 Discussion Paper No. A-461

Author: Corneo, Giacomo, and Olivier Jeanne

Title: Conspicuous Consumption and the Existence of Upward Sloping Demand Curves

Abstract: This paper develops a theoretical framework for studying conspicuous consumption. This is modeled as a device that signals the consumer's social status. Status is some function of the individual's rank in the wealth hierarchy. This approach makes it possible to distinguish between snob and conformist consumer behavior. It is shown that when behavior is conformist, the market demand curve for the good can exhibit a positive slope. A number of unconventional implications for public policy are then derived concerning taxation, monopoly power, and the voluntary provision of public goods.

Keywords: consumption externalities, status-seeking behavior, law of demand

JEL-Classification-Number: D11, D82, H23

Creation-Date: December 1994
URL: ../1994/a/bonnsfa461.pdf

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