Comparison Utility in a Growth Model

Abstract

We examine the dynamics of two endogenous-growth modelsin which agents have comparison utility. In the inward-lookingeconomy, individuals care about how their current consumptioncompares with their own past consumption. In the outward-lookingeconomy, they care about how their own consumption compares withother people‘s consumption. In response to a negative shock tocapital, saving and growth will temporarily fall in both of themodels that we consider but will remain constant in a model withstandard preferences. The decline will be smaller in the outward-than in the inward-looking case, but utility will be lower inthe former case because of a negative externality.