Comparison Utility in a Growth Model |
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Authors: | Christopher D Carroll Jody Overland David N Weil |
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Institution: | (1) Department of Economics, The Johns Hopkins University, Baltimore, MD 21218-2685, USA;(2) Department of Economics, University of Colorado at Denver, Denver, CO 80217-3364, USA |
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Abstract: | We examine the dynamics of two endogenous-growth modelsin which agents have comparison utility. In the inward-lookingeconomy, individuals care about how their current consumptioncompares with their own past consumption. In the outward-lookingeconomy, they care about how their own consumption compares withother peoples consumption. In response to a negative shock tocapital, saving and growth will temporarily fall in both of themodels that we consider but will remain constant in a model withstandard preferences. The decline will be smaller in the outward-than in the inward-looking case, but utility will be lower inthe former case because of a negative externality. |
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Keywords: | habit formation relative consumption endogenous growth |
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