To Begrudge Or Not to Begrudge: Consumption and Leisure Externalities Revisited

Abstract

This article employs a dynamic general equilibrium model to study the implications of a nonstandard preference structure for the short-run dynamics of the economy. Preferences in this model are assumed to contain comparison elements for consumption and leisure, i.e. agents care about how their own consumption and leisure compares to a certain reference stock that is determined by the economy's average level of consumption and leisure. This specification inevitably creates externalities. We then estimate the model and find that these externalities are both positive and statistically significant.