Macroeconomic implications of conspicuous consumption: A Sombartian dynamic model

This paper presents a dynamic general equilibrium model in which consumers have status preference. I investigate the manner in which capital accumulation is impeded by conspicuous consumption àlala Corneo and Jeanne [Corneo, G., Jeanne, O., 1997a. Conspicuous consumption, snobbism and conformism. Journal of Public Economics 66, 55–71]. Following the literature, social norms are given as either bandwagon type or snob type. I show that when the economy is characterized by a bandwagon type social norm, capital accumulation exhibits interesting patterns. Those patterns include, for example, an oscillating convergence path: the rise of the economy feeds its decay through conspicuous consumption and that decay suppresses conspicuous consumption and engenders prosperity, as predicted by Sombart [Sombart, W., 1912. Liebe, Luxus und Kapitalismus, Deutscher Taschenbuch Verlag, Germany (reprinted 1967)].