Positional Preferences: Efficiency and Distortions Under Welfarist- and Paternalistic Governments

36 Pages Posted: 24 Mar 2017

See all articles by Sugata Ghosh

Sugata Ghosh

Brunel University London - Economics and Finance

Ronald Wendner

University of Graz - Department of Economics

Date Written: March 22, 2017

Abstract

This paper analyzes the distortionary effects of positional preferences when labor supply is exogenous under both a welfarist and a paternalistic government. Extending the prior literature, reference levels may be partially exogenous to the government (e.g., determined by consumption choices in a foreign country), and individuals may be positional with respect to wealth in addition to consumption. Neither consumption- nor consumption-cum-wealth positionality needs to cause inter-temporal distortions under either welfare criterion. We derive necessary and sufficient conditions for non-distortion of positional preferences. If those conditions are not satisfied, the same reference levels of consumption and wealth can give rise to under-saving or to over-saving -- depending on the extend to which the reference levels are exogenous to the government. Moreover, we provide conditions for which positional preferences for wealth and consumption imply over-consumption with respect to the welfarist criterion but, at the same time, over-saving with respect to the paternalistic criterion.

Suggested Citation

Ghosh, Sugata and Wendner, Ronald, Positional Preferences: Efficiency and Distortions Under Welfarist- and Paternalistic Governments (March 22, 2017). Available at SSRN: https://ssrn.com/abstract=2939381 or http://dx.doi.org/10.2139/ssrn.2939381

Sugata Ghosh

Brunel University London - Economics and Finance ( email )

Uxbridge UB8 3PH
United Kingdom

Ronald Wendner (Contact Author)

University of Graz - Department of Economics ( email )

Universitaetsstrasse 15
RESOWI - F4
Graz, A-8010
Austria
+43 316 380 3458 (Phone)
+43 316 380 693458 (Fax)

HOME PAGE: http://homepage.uni-graz.at/de/ronald.wendner/

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