Centre for Development Economics
and
Department of Economics, Delhi School of Economics

ANNOUNCE A SEMINAR

Income Inequality and Consumer Behavior:
A Model of Conspicuous Consumption


by

Neha Khanna
Binghamton University

On Thursday, January 14, 2010 at 3:00 p.m.

Venue : New Seminar Room [First Floor]
Department of Economics, Delhi School of Economics

All are cordially invited

Abstract

We provide a thorough analysis of the relationship between changes in income inequality and individual consumer demand in the presence of conspicuous consumption. We develop a model of interdependent preferences that incorporates behaviors such as "keeping up" and "running away from the Joneses," and "envy" and "snob effects." These features allow us to analyze the impacts of a mean-preserving change in inequality on an agent's optimal consumption bundle. We find that a mean-preserving
increase in inequality leads to increased consumption of the more conspicuous good when an agent has preferences consistent with either 1) "keeping up with Jonesese" and a relatively stronger envy effect, or 2) "running away from the Joneses" and a relatively stronger snob effect. Unlike previous models we focus upon the median or neutral agent who is not directly affected by the redistribution. Finally, we also demonstrate the relationship between prior models of conspicuous behavior as special cases of our general framework."