Well-being and Affluence in the Presence of a Veblen Good

The happiness literature has established that, in the developed countries, increasing affluence has not increased well-being in recent decades. We seek an explanation for this in terms of conspicuous consumption, a phenomenon originally identified by Veblen. We develop some simple general equilibrium models that incorporate a Veblen good, among others. In all of our models, as productivity increases, the Veblen good eventually dominates the economy in the sense that, by reducing leisure, more than all the added productivity is dissipated in the production of this good. Also, in the presence of a Veblen good, productivity increases destroy social capital.