Cobb-Douglas Utility with Nonlinear Engel Curves in a Conspicuous Consumption Model

15 Pages Posted: 4 Aug 2007

See all articles by Ori Heffetz

Ori Heffetz

Cornell University - S.C. Johnson Graduate School of Management; The Hebrew University of Jerusalem - Department of Economics and Center for Rationality; National Bureau of Economic Research (NBER)

Date Written: September 2, 2007

Abstract

We solve Ireland's (1994) conspicuous consumption model (where social-status concerns are introduced into the utility function) for Cobb-Douglas (CD) utility. In the resulting generalized CD consumer model, Engel curves are no longer limited to linearity. In the homothetic CD case, total expenditure elasticities are therefore no longer limited to unity. Furthermore, whether a commodity is a luxury or a necessity is determined by whether it is visible or non-visible to society. Cross-commodity variation in the shape of Engel curves is thus derived from a measurable property of commodities. This reopens the possibility of explaining empirically observed consumption patterns with a CD utility model.

Keywords: conspicuous consumption, Engel curves, total expenditure elasticity, Cobb-Douglas

JEL Classification: D11, D82

Suggested Citation

Heffetz, Ori, Cobb-Douglas Utility with Nonlinear Engel Curves in a Conspicuous Consumption Model (September 2, 2007). Available at SSRN: https://ssrn.com/abstract=1004544 or http://dx.doi.org/10.2139/ssrn.1004544

Ori Heffetz (Contact Author)

Cornell University - S.C. Johnson Graduate School of Management ( email )

324 Sage Hall
Ithaca, NY 14853
United States

The Hebrew University of Jerusalem - Department of Economics and Center for Rationality

Mount Scopus
Jerusalem, Jerusalem 91905
Israel

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/~heffetz

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
489
Abstract Views
3,471
rank
74,571
PlumX Metrics