Veblen effect

Fig. 1) Veblen effect. illustrates the course of a demand curve in the Veblen case.

{\ displaystyle D (p)}

In economics, and especially in microeconomics, the Veblen effect is the phenomenon that the demand for certain goods may increase despite a price increase because consumers prefer to emphasize their status to other individuals by consuming expensive goods.

Goods affected by the effect are also known as Veblen goods . The name of the effect goes back to the American economist Thorstein Veblen , who first described the phenomenon in 1899.

Historical background

Veblen noted in his Theory of the Leisure Class , published in 1899, about the superior pecuniary class :

“For this class also the incentive to diligence and thrift is not absent; but its action is so greatly qualified by the secondary demands of pecuniary emulation, that any inclination in this direction is practically overborne and any incentive to diligence tends to be of no effect. The most imperative of these secondary demands of emulation, as well as the one of widest scope, is the requirement of abstention from productive work […] [L] abour is felt to be debasing, and this tradition has never died out […] In order to gain and to hold the esteem of men it is not sufficient merely to possess wealth or power. The wealth or power must be put in evidence, for esteem is awarded only on evidence [...] ”

- Thorstein Veblen

description

Demand curves are classically falling in the sense that the higher the price of the good in question, the lower the demand ( law of demand ). At the same time, the demand function is also solely dependent on the price of the goods in demand, or - if one wants to include cross-product effects - dependent on the price of all goods. If there is a good veblen character, the demand of the consumer i is also dependent on the demand of the other consumers or the difference between the own demand and the average demand for the good.

This relationship is illustrated in Fig. 1. First, consider the classic market demand curve ; the demand at the starting price is . Due to the price increase from to , there is a corresponding drop in demand (movement on the curve). In the Veblen case, however, this consideration is not sufficient. Due to the decline in demand for other consumers with classic course of the demand curve of the considered consumers increasingly from the perspective the exclusivity of the goods and the demand curve shifts to the hypothetical to the right ( ) because the estate even more attractive by the price increase has become - a luxurious bag for the price is , exemplarily speaking, so to speak a different, more desirable good than the same bag at a lower price. The equilibrium amount increases from to . The result is the orange-colored demand curve , which runs upwards. Note that the Veblen good violates the law of demand only as a result ; As can be seen from the above consideration, the Veblen case can be deconstructed in such a way that the law of demand is preserved in every step. ${\ displaystyle D_ {0} (p)}$ ${\ displaystyle p_ {0}}$ ${\ displaystyle q_ {0}}$ ${\ displaystyle p_ {0}}$ ${\ displaystyle p_ {1}}$ ${\ displaystyle q_ {1} '}$ ${\ displaystyle D_ {h} (p)}$ ${\ displaystyle p_ {1}}$ ${\ displaystyle q_ {1} '}$ ${\ displaystyle q_ {1}}$ ${\ displaystyle D (p)}$

Typically, such a rising course will of course only occur in places with Veblen goods. This can also be made clear in Fig. 1. If one continues to move up and to the left on the original demand curve, the Veblen effect will at some point no longer be able to compensate for the price effect.

A good, the individual value of which results solely from the relationship between the ratio of one's own consumption to that of others, is called a pure Veblen good. In a utility function is regularly implemented this by defining the benefits as with the average consumption of the good in society. ${\ displaystyle u = u (q - {\ overline {q}})}$ ${\ displaystyle {\ overline {q}}}$

Differentiation from the Giffen case

In addition to Veblen goods, there are also other goods that are characterized by anomalous demand behavior. An example of this are so-called Giffen goods , the demand curve of which is also rising. The mechanisms underlying the two effects are fundamentally different: Giffen goods are inferior , that is, the demand for them decreases with increasing income ; in addition, there is a positive price elasticity of demand for them . The atypical course of the demand curve results from the fact that an increased price for the Giffen good means that a household can no longer afford (even) more expensive goods and therefore has to ask for the Giffen good even more than before.

In contrast, the demand for Veblen goods is of course normal in any case - according to the assumptions, it increases with increasing income . (Also consider that the violation of the law of demand in the Giffen case actually exists in the sense that it cannot be theoretically deconstructed - as shown above for Veblen goods.)

literature

B. Curtis Eaton: Veblen Goods. In: Steven N. Durlauf, Lawrence E. Blume (Eds.): The New Palgrave Dictionary of Economics. 2nd Edition. Palgrave Macmillan 2008, doi : 10.1057 / 9780230226203.1790 (online edition).
Johannes Natrop: Principles of Applied Microeconomics. 2nd Edition. Oldenbourg, Munich 2012, ISBN 978-3-486-71315-2 . (Pp. 103–104)
Thorstein Veblen : The Theory of the Leisure Class. An Economic Study of Institutions. Macmillan, London 1899. (Here quoted after the reprint: Viking Press, New York 1965; a German translation has been published under the title Theory of Fine People . An Economic Study of Institutions : Kiepenheuer & Witsch, Cologne 1958.)

Remarks

↑ Veblen 1899, p. 36 (also online: virginia.edu accessed on August 22, 2013).
↑ In the latter sense, for example, Eaton 2008.
↑ With B. Curtis Eaton and Mukesh Eswaran: Well-being and Affluence in the Presence of a Veblen Good. In: The Economic Journal. 119, No. 539, pp. 1088-1104, 2009, doi : 10.1111 / j.1468-0297.2009.02255.x , here p. 1090; B. Curtis Eaton and Jesse A. Matheson: Resource allocation, affluence and deadweight loss when relative consumption matters. In: Journal of Economic Behavior & Organization. 91, 2013, pp. 159–178, doi : 10.1016 / j.jebo.2013.04.011 , here p. 159.

[1] Veblen 1899, p. 36 (also online: virginia.edu accessed on August 22, 2013).

[2] In the latter sense, for example, Eaton 2008.

[3] With B. Curtis Eaton and Mukesh Eswaran: Well-being and Affluence in the Presence of a Veblen Good. In: The Economic Journal. 119, No. 539, pp. 1088-1104, 2009, doi : 10.1111 / j.1468-0297.2009.02255.x , here p. 1090; B. Curtis Eaton and Jesse A. Matheson: Resource allocation, affluence and deadweight loss when relative consumption matters. In: Journal of Economic Behavior & Organization. 91, 2013, pp. 159–178, doi : 10.1016 / j.jebo.2013.04.011 , here p. 159.