The good, the bad and the worse: current, past and future consumption externalities and equilibrium efficiency
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The good, the bad and the worse: current, past and future consumption externalities and equilibrium efficiencyAuthor(s)
Date
2022Citation
"Gómez, M. A. (2022). The good, the bad and the worse: current, past and future consumption externalities and equilibrium efficiency. Journal of Economics/ Zeitschrift fur Nationalokonomie, 137(3), 195-228. https://doi.org/10.1007/S00712-022-00788-6 "
Abstract
[Abstract]: We consider an Ak model in which instantaneous utility of the representative agent depends not only on current consumption, but also on a forward-looking external
reference level which is specified as an exponentially declining average of future
economy-wide average consumption. We show that the decentralized equilibrium is
never efficient irrespective of the specification of the utility function. This result
differs significantly from the implications of alternative specifications of the external
reference level: In case that the latter is given by contemporaneous average consumption,
the decentralized equilibrium is always efficient. However, if it is backward-
looking, then efficiency obtains only if the arguments of the utility function are
perfectly substitutable
Keywords
Consumption externalities
Efficiency
Anticipated consumption
Habits
Efficiency
Anticipated consumption
Habits
Editor version
Rights
Atribución 3.0 España
ISSN
1986-2020