Intertemporal Choice
In: Blackwell Handbook of Judgment and Decision Making, S. 424-443
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In: Blackwell Handbook of Judgment and Decision Making, S. 424-443
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In: CESifo Working Paper No. 9472
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In: FRB of Philadelphia Working Paper No. 22-27
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Working paper
In: Journal of political economy, Band 102, Heft 3, S. 437-467
ISSN: 1537-534X
In: Journal of political economy, Band 102, Heft 3, S. 437
ISSN: 0022-3808
In: CESifo Working Paper Series No. 6913
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In: Journal of risk and uncertainty, Band 47, Heft 3, S. 225-253
ISSN: 1573-0476
In: CESifo Working Paper No. 9011
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In: Journal of Experimental Psychology: General 2010 American Psychological Association, Band 139, Heft 1, S. 49-69
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In: The B.E. journal of theoretical economics, Band 10, Heft 1
ISSN: 1935-1704
This paper develops an intertemporal model in which individuals care about consumption not only for its own sake, but also for the status it implies. By putting an additive status term into the utility function, I show that the level of inequality in the initial wealth distribution affects individuals' saving and consumption behavior. The direction of the distortion in intertemporal choice relative to the standard model without a concern for status depends on the elasticity of intertemporal substitution in the utility from absolute consumption. In particular, I prove that, for conventional parameter values of the elasticity (e.g. CES parameter larger than one), people save less than what they do without the status concern but the magnitude of this decrease is reduced by the concern for future status. It is also possible that people save more than what they do without the status concern. I also analyze how changes in the initial wealth distribution affect saving. For example, when wealth is Pareto distributed, for a reasonable parameterization, the rich save more and the poor save less when society gets more unequal, which implies that inequality is self-enforcing in this economy. Finally, the resulting allocation is Pareto inefficient due to the externalities generated by the concern for status.
In: The Canadian Journal of Economics, Band 17, Heft 2, S. 217