Chapter 11: Is More Really Better? Consumption and Welfare Flashcards
Is overconsumption possible?
Is overconsumption possible?
- Yes - In IPAT equationEnvironmental Impact = Population * Affluence * Technology
- Yes, if more is NOT really better
What is the impact on “efficiency” is the “more is better” assumption is wrong (or has a limit)?
♻️ If material gain in fact not lead to greater happiness - then efficienct outcome do not really increase welfare
- Means benefit-cost analysis loses much of its force and safety or sustainability goals make more sense
- Furthermore, means society overconsuming resources
What is the Easterlin Paradox?
- Above middle class income, money buys very little happiness = does so at a decresaing rate
- Middle income people are only bit less happy than the richest
- Rags to riches? % “very-happy”About 1 in 5 poor peopleJust over 1 in 4 rich people
How do social norms and consumption influence the paradox?
- Bandwagon Effect:Desire to consume something because others are as well
- Snob Effect:Desire to do or consume something because others aren’t
- Veblen Effect: (type of Snob Effect)“Conspicuous Consumption”
How to explain the Easterlin Paradox:
- Social motives for consummption and the “rat race” (way of life in which people are caught up in a fiercely competitive struggle for wealth or power)
- Increasing importance of positional goods
Getting Ahead:
- While rich people not much happier then middle class people:Recently gotten richer much more satisfied than people recently gotten poorer
- Exceeding Consumption Norms and personal expectations appears to be the material route to happiness
How does the prisoner’s dilemma relate to the rat race?
Competitiver consumption yields much smaller benefits to individuals when pursued at society-wide level
- Rat Race = Prisoner’s Dilemma Game (Everyone better off if the race was canceled)
- Because everyone else is racing = each individual is better off trying to win
- Both choose coke as the Dominant strategy
- Option best for social welfare is to budget
What are propositional goods?
Positional Goods: Goods w n fixed or inelastic long-run supply
Increased importance of propositional goods:
Positional Goods: Goods w n fixed or inelastic long-run supply
Ex: (1) housing in good neighborhoods w/ good schools or natural amenities; slots prestigious unis; num of management level jobs in economy
Competition Propositional Goods drives up relative prices: creates sense of deprivation**
Over time: only accessible to the wealthy
Public Goods: Price by conjestion and can create externalities
Zero-Sum Game:
- Pure, positional competition = “zero-sum” game
Everyone that gains access = someone else must give it up
How can individual consumption bundles be divided into?
-
Competitive Elements:
- Goods yield utility as a result of social norms
- Positional goods
- Noncompetitive Elements:
What is the utility function?
Where $X^c_{NA}$ stands for the competitive consumption bundles of all people who are not Aldo*
As this num increases → Aldo’s utility decreases
- Economic growth increases competitive goods for other people decreases Aldo’s happiness
- Increases in noncompetitive goods unambiguously increase social welfare
What are the economic implications of social consumption?
Economic Implications:
Taxes on consumption of status goods increases overall welfare
- People overvalue increases in private consumption (often has a competitive element)
- Undervalue noncompetitive goods like environmental quality
Can the growth of A (affluence) in IPAT be controlled?
Global drive to affluence (A in IPAT) is one major driver of increased human impact on natural systems
- Redefining “progress” or “American dream” to focus less on consumption of material goods is one critical component to achieve sustainability
Consumer Culture: Society which consumption is primary means of achieving social status
Can economic policy change?
- Change consumer culture
- Regulatoin of advertising
- Mandating vacations (Limiting Work)
- Consumption taxes
Can Growth of A (Affluence) in IPAT be Controlled?
Consumption Taxes:
European Model: Use revenues to fund social services.
Does this reduce consumption or just redistribute?
Use revenue to benefit sustainable development in poor countries via:
- Debt relief
- Family planning
- Land reform
- Resource Protection
- Clean energy and manufacturing
Can Growth of A (Affluence) in IPAT be Controlled?
Consumption and Employment:
Is high consumption necessary for the economy to operate?
- Not in the long run
- As consumption reduced, work hours also need to be reducedEg. European workers more paid vacation than Americans
Consumption reduction in rich countries need not imply employment reduction → require hours reduction
Implication: (Rich countries) Social consumption theory says…
beyond initial adjustment period (people lower expected consumption levels) taxes shifts of resources from current consumption to sustainable investment or development assistance would not reduce overall societal welfare
Can Growth of A (Affluence) in IPAT be Controlled?
Advertising Regulation
- Useful but negative externalities: encouraging competitive consumption
Hence, focus controlling negative externalities - not service itself
Video advertising seldom provides key useful components of advertising: information
Ex Regulations:
- Limits num min/hour devoted advertising, esp. children
- Advertising-free TV (supported tax revenue)
- A “pollution tax” on national video advertising
