How Rising Inequality Stimulates Energy Demand. Robert H. Frank St. Gallen Symposium June 2, 2007. Which world would you choose?. World A: You and your family live in a 4000-square foot house, others live in 6000-square-foot houses.
Robert H. Frank
St. Gallen Symposium
June 2, 2007
World A: You and your family live in a 4000-square foot house, others live in 6000-square-foot houses.
World B: You and your family live in a 3000-square foot house, others live in 2000-square-foot houses.
C: You have 2 weeks of vacation each year, others have 1 week,
D: You have four weeks of vacation each year, others have 6 weeks?
Leisure = nonpositional good
Adam Smith’s invisible hand: domains than in others.
Self-interested demands will result in a socially efficient allocation.
Charles Darwin: Traits are selected because of their impact on the reproductive fitness of individuals, not groups.
Traits that benefit individuals often work to the disadvantage of groups.
Very little sexual dimorphism in monogamous species like the albatross.
Gaining access to mates females?
= a positional good
Minimizing the risk of death from predators
= a nonpositional good
Robert H. Frank.“The Demand for Unobservable and Other Nonpositional Goods.” American Economic Review, 75, March, 1985, pp. 101-116.
Bottom quintile: Absolute earnings decline
Middle quintile: Negligible earnings growth
Top quintile: Substantial growth
College graduates market group:
The top 1 percent
The top 1/10th of 1 percent…
Earnings of CEOs of largest U.S. market group:corporations
1980: 42 x average worker’s earnings
2000: 531 x average worker’s earnings
Hedge fund manager James Simons: $1.7 billion in 2006 (38,000 x average worker’s salary)
Top 25 hedge fund managers: $14 billion in 2006
Context and the demand for quality market group:
A memorable meal market group:
An effective interview suit
A suitable gift
In a poor country, a man proves to his wife that he loves her by giving her a rose. In a rich country he must give a dozen roses.
2) you save too little to support a comfortable standard of living in retirement, but your children attend a school whose students score in the 50th percentile on those tests?
The cost of sending a child to a school you prefer? of average quality is linked to the price of the average house in the community.
Median size of a newly constructed house:
1980: less than 1600 square feet
2004: more than 2100 square feet
How heavy should your car be? you prefer?
Honda Civic: 2449 pounds
The Progressive Consumption Tax you prefer?
Consumption + Savings = Income
Consumption = Income – Savings
Taxable consumption = Income – Savings
– standard deduction
Gas Grills Then and Now you prefer?
1989 Sunbeam, $90
Viking Professional, $5,000.
Talos Outdoor Cooking Suite, $35,000 you prefer? .