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- Title
Fashion and wealth accumulation.
- Authors
Shouyong Shi
- Abstract
This paper examines the influence of fashion on wealth accumulation in an economy with two groups of agents. Fashion is modelled as an externality generated by a particular dependence of individual agents' time preference on the two groups' per-capita consumption habits. It is shown that fashion causes excessive wealth fluctuations in the sense that stronger and more persistent fashion is more likely to generate limit cycles in wealth. Opposite to intuitive arguments, however, the externality in fashion does not necessarily generate instability in wealth. In a special case, equilibrium consumption and wealth are stable but the optimal ones that internalize the externality are locally unstable. Whether equilibrium consumption is excessive relative to optimal consumption depends on the distribution as well as the aggregate level of wealth.
- Subjects
FASHION; WEALTH; ECONOMICS; HABIT; LIMIT cycles; SAVINGS
- Publication
Economic Theory, 1999, Vol 14, Issue 2, p439
- ISSN
0938-2259
- Publication type
Article
- DOI
10.1007/s001990050303