is more really better? consumption and welfare. introduction is “overconsumption” possible? 1....
TRANSCRIPT
Is More Really Better?
Consumption and Welfare
Introduction
Is “overconsumption” possible?
1. In the IPAT equation (Chapter 7)Environmental Impact = Population * Affluence *
Technology
2. If more is not really better (This chapter)
More is Better?
If material gain in fact does not lead to greater happiness, then efficient outcomes do not really increase welfareThis means benefit-cost analysis loses much
of its force and safety or sustainability goals make more sense
This also means that society is “overconsuming” resources
Money and Happiness
Easterlin Paradox:
Money buys very little happiness, and it does so at a decreasing rate
The poorest people in a nation are only a bit less happy than the richest:
% “very happy”○ About 1 in 5 poor people○ Just over 1 in 4 rich people
Social Norms and Consumption
• Bandwagon effect: ○ A desire to consume something because others
are as well• Snob effect:
○ the desire to do or consume something because others aren’t
• Veblen effect (a type of Snob Effect):○ “Conspicuous consumption”
Explaining the paradox
1. Social motives for consumption and the “rat race”.
2. Increasing importance of positional goods.
Getting Ahead
Survey research reveals that People who have recently gotten richer are much more satisfied than people who have recently gotten poorer
Exceeding consumption norms and personal expectations appears to be the material route to happiness
1. The Rat Race
Competitive consumption yields much smaller benefits to individuals when pursued at the society-wide level
The rat race = a Prisoner’s Dilemma Game. Everyone would be better off if the race was canceled
Yet, given that everyone else is racing, each individual is better off trying to win
The Rat Race as a Prisoner’s Dilemma
2. Increasing Importance of Positional Goods
Positional goods: Goods with a fixed or inelastic long-run supply. Housing in neighborhoods w/ good schools or
natural amenities; slots in prestigous universities; the number of management level jobs in the economy.
Competition for Positional goods reduces quality of life, even as consumption of non-positional goods increases
Zero-Sum Game
Pure positional competition is a “zero-sum” gameFor every person who gains access to a
positional good, someone else must give it up
Increases in income channeled into this competition fail to increase overall welfare
Next Step: Welfare with Social Consumption
Divide up each individuals consumption bundle intoCompetitive elements
○ Goods that yield utility as a result of social norms.
○ Positional goodsNoncompetitive elements
The Utility Function:
UA = U(XncA, Xc
A, XcNA)
○ Where XcNA stands for the competitive consumption bundle
of all people who are not Aldo; as this number increases, Aldo’s utility decreases
Economic growth that increases the stock of competitive goods need not increase happiness (though it may)
Increases in the stock of noncompetitive goods unambiguously increases social welfare
Economic ImplicationsTaxes on the consumption of status goods
become efficientPeople tend to overvalue increases in
private consumption and undervalue noncompetitive goods and environmental quality
GDP growth fails to capture real increases in social welfare on yet one more ground
Can the Growth of A in IPAT Be Controlled?
Consumer culture:A society in which consumption is a primary
means of achieving social status
Can economic policy change a culture? Consumption taxesRegulation of advertisingMandating Vacations
Consumption taxes: What to do with the revenue? The European Model: Use revenues to
fund social services. Does this reduce consumption or just redistribute it?
Use revenues to benefit sustainable development in poor countries viaDebt reliefFamily planningLand reformResource protectionClean energy and manufacturing
Consumption and Employment
Is high consumption necessary for the economy to operate?Not in the long runAs consumption is reduced, work hours would
also need to be reduced: eg, European workers have much more paid vacation than Americans (along with lower pay)
Consumption reductions in rich countries need not imply employment reductions, though they would require hours reductions.
A Startling Implication In rich countries, social consumption theory
says that beyond an initial adjustment period, in which people lowered their expected consumption levels, a shift of resources from current consumption to sustainable investment or development assistance would not reduce overall social welfare
Advertising Regulation Advertising: a useful product, with
negative externalities. Focus on controlling the negative
externality, not the product itself TV advertising seldom provides the key
useful component of advertising: information.
Examples of Regulation
Limits on the number of minutes per hour that can be devoted to advertising
Advertising-free television, supported by tax revenues
A “pollution tax” on national TV advertising
Can Economic Policy really change consumer culture?
Many European countries already have high consumption taxes, mandate longer vacations, and restrict advertising.
They have smaller cars and houses, better public transport and universal health care. Otherwise lifestyles are similar.
GDP grows slightly less fast; environmental footprint on some dimensions around 50% of US. Is there less of a consumer culture?