Conspicuous Consumption, Inconspicuous Leisure*


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     James Meade's pioneering work on the theory of externalities (Meade, 1952; 1973) has been a source of inspiration to us both. So we are particularly grateful to David Vines and Martin Weale for their invitation to contribute to the occasion of the James Meade Centenary Conference in July 12–13, 2007, at the Bank of England. We are also very grateful to Thomas Crossley, Ann Kinzig, Andrew Oswald and Robert Solow for helpful discussions; and to two anonymous referees for their comments and suggestions.


It is commonly argued that because relative consumption appears to matter to people, they must be involved in a ‘rat race’: people work harder and consume more than they would have were optimum public policies in place. But although consuming more today would improve one's relative consumption now, it would worsen one's relative consumption in the future. In this article we identify the structure of felicity functions for which the two effects offset each other exactly. The finding goes some way toward explaining why, while household surveys suggest that relative consumption matters, the consumption behaviour of households has not pointed unambiguously to the presence of relative consumption effects.