I develop a dynamic theory of luxury consumption, particularly emphasizing the causal effect that pursuit of luxury goods has on wealth accumulation. A quasi-luxury is defined as a good whose marginal rate of substitution is increasing in a utility index. Under certain conditions, it is indeed a luxury good. When current wealth holding falls short of (exceeds) long-run needs, luxury consumption is postponed more (less) easily than necessity consumption, due to a lower (higher) time preference for luxury and/or a higher intertemporal elasticity of substitution thereof. Preferences for quasi-luxuries lead to a higher steady-state value of wealth or capital.
CITATION STYLE
Ikeda, S. (2015). Luxury and wealth. In Behavioral Interactions, Markets, and Economic Dynamics: Topics in Behavioral Economics (pp. 273–309). Springer Japan. https://doi.org/10.1007/978-4-431-55501-8_10
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