Competitive conspicuous consumption, household saving and income inequality

An intertemporal decision model is presented in which subjects save less for retirement than the permanent income hypothesis predicts, signaling optimistic income prospects (and therefore high latent productivity) to possible partners in productive exchanges. Competitive conspicuous consumption (CCC), as it is called, is a self-defeating strategy, if followed by subjects simultaneously. Egalitarian policies (which have to be distinguished from pure welfare policies) tend to lower excess consumption. The CCC-hypothesis justifies a cross-sectional Keynesian consumption function with declining marginal propensities to consume. It is argued that the cultural context is highly relevant to the scope and importance of CCC. (author's abstract)