my research

Abstract: This article departs from the traditional welfare analysis of social status seeking by incorporating scale economies, product differentiation, and monopolistic competition into a model. I argue that social status seeking could be welfare improving rather than the usual conclusion that social status seeking is welfare-reducing, under some assumptions that are not particularly strong. Market distortions of the quantity–variety and consumption–leisure trade-off may be corrected by social status seeking. Since modern societies are arguably closer to monopolistic competition than perfect competition, we may also need to rethink the long-held belief that the welfare effects caused by social status seeking are usually negative.

Cited by Social comparisons in oligopsony, Thorstein Veblen, Joan Robinson, and George Stigler (Probably) Never Met   

Abstract: Based on sociologists’ findings, it is more likely that middle-status people are “keeping up with the Joneses” while both the highest-status and lowest-status people are “running away from the Joneses”. Existing economic models fail to reproduce this inverted-U shaped (IUS) curve. In my model, response to the Joneses is endogenized and is related to one's status position. Under some reasonable assumptions, an IUS pattern will appear. A comparison with a sociological explanation of the same phenomenon and further implications will also be discussed.

Abstract: Free markets may support too many or too few firms. Traditional analysis does not provide unambiguous conclusion in this respect. This paper introduces status effects of consumption into the model. It shows that a sufficiently significant status effect tends to support too many firms. Two conditions are required for this result. First, complementary effect between status and consumption is not significant. Second, a higher average status consumption level makes everyone more difficult to get the same degree of gain in status. Both conditions appear to be realistic.

Cited by Free entry and social inefficiency under co-opetition; free and second-best entry in oligopolies with network effects 

Abstract: Status goods are often produced by firms with market powers. Taking this into account, we construct a new class of models of status goods, which refutes many important results in the conventional models without assuming market powers. Specifically, relative consumption effect normally leads to under-consumption of status goods, which is the opposite of the conventional result. Generally speaking, status goods may be over- or under-consumed, depending crucially on a widely overlooked factor in the literature − the elasticity of marginal status. More competition tends to support overconsumption and is not necessarily welfare-enhancing. Our results call into questions if, as often suggested in existing literature, a general taxation is an appropriate solution to tackle market bias from status seeking.

Cited by Social comparisons in oligopsony; positional preferences and narcissism 

Abstract: We introduce status goods in a model of monopolistic competition for investigating whether a stronger preference for status promotes a higher quantity or a greater variety of status goods in equilibrium. We argue that diversification is a more likely outcome. Elasticity of marginal status is identified as the crucial factor. Under the widely adopted relative-consumption hypothesis, elasticity of marginal status equals one, which supports a higher variety. Under other hypotheses, if the status return from an extra unit of own consumption falls as others’ consumption rises, elasticity of marginal status is likely to be higher than one or not substantially smaller than one. In these reasonable patterns, diversification also tends to appear.

Abstract: The devastating implications of the theory of second best, despite being well recognized a half century ago, do not have much influence on the current way we teach public economics at undergraduate level, as this paper shows. The current practices basically stick to the first-best policy framework, and the theory of second best, even if mentioned, is at most marginally important. Some justifications for this textbook framework are called for if we do not think second best is a bad idea. This paper argues that this textbook framework cannot be justified by the absence of irremovable distortions in the real world, and should be considered within the social-welfare framework to maintain coherence with other parts of the framework. Without calling for a major revamp of the current way of teaching, I suggest that the theory of third best can be adopted to justify this way of teaching in a realistic environment: when policy-makers are informationally constrained, and when the unaccounted-for distortion is not large, or when a conservative attitude is adopted for interventions.

Cited by The theory of third best: how to interpret and apply, Economic policy with and without maximizing rules, and Welfare Economics and Second-Best Theory

Abstract: Although Kaplow and Shavell (2001) have established a devastating result that ”any non-welfarist method of policy assessment violates the Pareto principle”, they use a problematic assumption of continuity: social welfare is continuous in a non-merit good. This paper proposes using proximity preservation, a concept in topological social choice theory, to rebuild their theorem. The advantage of the new assumption is twofold. First, it is adopted for a good substantive reason, and not for mere technical convenience —this assumption prevents magnification of small errors, and is thus irresistible for any careful social evaluations. Second, it is much weaker than any version of continuity and thus offers a much more solid foundation for the theorem. As such, the new proof in this paper greatly strengthens the original result.

Cited by Partially ordered social utility optimizations, when is weak Pareto equivalent to strong Pareto

Abstract: According to Adam Smith’s and Allyn Young’s concept of division of labour, market extent and the level of specialization reinforce each other. As a result, multiple equilibria can easily appear, and this feature has been incorporated as a core element in development economics. However, we need further conditions for the existence of multiple equilibria but existing literature largely ignores these conditions. We consider two production structures, one involving intensive division of labour (the modern sector) and one without (traditional sector). We demonstrate that the modern goods should be either non-essential or elastic goods over some relevant range, or multiple equilibria may not exist even if division of labour is important. We use quadratic utility and constant-elasticity-of-substitution utility models to show how each of these conditions takes effect respectively. These new conditions may also help us better understand some features that existed in early days of development.

Erratum: In equation (12), there is a redundant "e;" appearing before "(m)". The redundant "e;" should be deleted.

Cited by Accounting for global value chains, semi-endogenous growth dynamics with delays

I develop a dynamic model of consumption variety in status goods by introducing a realistic aspect that is new in the existing literature—that a good will not carry status appeal unless it is advertised. As advertisements will divert resources from new product research, growth in new products will be reduced. However, status-good advertisements also enhance distinctiveness of a good and increase a firm’s profit. This will motivate more researches. With the two effects offsetting each other, the original market bias in a standard product-development model—insufficient research due to a general knowledge spillover—cannot be overcome. While introducing advertising into models of this kind does not reverse the original welfare implication of suboptimal growth, this makes available a new and better intervention option—taxing advertisements. This tax is superior to consumption tax, the conventional solution to inefficient status competition, as consumption tax is found to be ineffective in the present model. It is also superior to research subsidies, the conventional solution to suboptimal growth, as subsidies must be financed and is not a self-sufficient policy.