State-Variable Public Goods and Social Comparisons over Time

Thomas Aronsson () and Olof Johansson-Stenman ()
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Thomas Aronsson: Umeå School of Business and Economics, Postal: Dept of Economics, Umeå University, SE 901 87 Umeå, Sweden

No 555, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: The optimal provision of a state-variable public good, where the global climate is the prime example, is analyzed in a model where people care about their relative consumption. We consider both keeping-up-with-the-Joneses preferences (where people compare their own current consumption with others’ current consumption) and catching-up-with-the-Joneses preferences (where people compare their own current consumption with others’ past consumption) in an economy with two productivity types, overlapping generations and optimal nonlinear income taxation. The extent to which the conventional rules for public provision ought to be modified is shown to depend on the strength of such relative concerns, but also on the preference elicitation format.

Keywords: State variable public goods; asymmetric information; relative consumption; status; positional preferences; climate policy. (search for similar items in EconPapers)
JEL-codes: D62 H21 H23 H41 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2013-02-28
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