Goods whose value is given by desirability rather than quantity
Positional goods are goods valued only by how they are distributed among the population, not by how many of them there are available in total (as would be the case with other consumer goods). The source of greater worth of positional goods is their desirability as a status symbol, which usually results in them greatly exceeding the value of comparable goods.
Various goods have been described as positional in a given capitalist society, such as gold, real estate, diamonds, and luxury goods. Generally any coveted goods, which may be in abundance, that are considered valuable or desirable in order to display or change one's social status when possessed by relatively few in a given community may be described as positional goods. What could be considered a positional good can vary widely depending on cultural or subcultural norms.
More formally in economics, positional goods are a subset of economic goods whose consumption (and subsequent utility), also conditioned by Veblen-like pricing, depends negatively on consumption of those same goods by others.[1][2] In particular, for these goods the value is at least in part (if not exclusively) a function of its ranking in desirability by others, in comparison to substitutes. The extent to which a good's value depends on such a ranking is referred to as its positionality. The term was coined by Austrian-British financial journalist Fred Hirsch, and the concept has been refined by American economics professor Robert H. Frank and Italian economist Ugo Pagano.
The term is sometimes extended to include services and non-material possessions that may alter one's social status and that are deemed highly desirable when enjoyed by relatively few in a community, such as college degrees, achievements, awards, etc.
Concept
Although Thorstein Veblen emphasized the importance of one's relative position in society with reference to the concept of conspicuous leisure and consumption,[3] it was Fred Hirsch who coined the concept of the "positional good", in Social Limits to Growth.[4] He explained that the positional economy is composed of "all aspects of goods, services, work positions and other social relationships that are either (1) scarce in some absolute or socially imposed sense or (2) subject to congestion and crowding through more extensive use" (Hirsch, 1977: 27).
Hence, Hirsch distinguished categories of positional goods.[5] Some depend, essentially, on their relative positions (pride of superiority, status, and power); others, such as land for leisure activities or land for suburban housing, are positional merely because their total amount is fixed. However, land is valued at least in part for its absolute contribution to productivity, which does not derive from its relative ranking. Thus, some economists (such as Robert H. Frank and Ugo Pagano) include only goods (like status and power) which are valued specifically because of their relative quality. In addition, jural positions can also be considered as positional goods (cf. Pagano and Vatiero 2017,[6] and Vatiero 2021[2]).
Hirsch's main contribution is his assertion that positional goods are inextricably linked to social scarcity [7] – social scarcity relates to the relative standings of different individuals and arises not from physical or natural limitations, but from social factors; for instance, the land in Inter-Provincial Montioni Park is physically scarce, while political leadership positions are socially scarce.
The broad theme of Hirsch's book was, he told The New York Times, that material growth can "no longer deliver what has long been promised for it – to make everyone middle-class".[8] The concept of positional good explains why, as economic growth improves overall quality of life at any particular level, doing "better" than how an individual's grandparents lived does not translate automatically into doing "well", if there are as many or more people ahead of them in the economic hierarchy. For example, if someone is the first in their family to get a college degree, they are doing better. But if they were at the bottom of their class at a weak school, they may find themselves less eligible for a job than their grandfather, who was only a high school graduate. That is, competition for positional goods is a zero-sum game: Attempts to acquire them can only benefit one player at the expense of others.
In the case of positional goods, people benefiting from a positional good do not take into account the externalities of their respective sufferers. That is, in the case of "public ... goods, the consequences of this failure implies that an agent consuming the public good does not get paid for other people's consumption; in the case of a positional ... good, the equivalent failure implies that an agent consuming positive amounts is not charged for the negative consumption of other agent's consumption" (Pagano 1999:71). That is, while, in the case of public goods, we have the standard underinvestment problem in their supply, because excluding individuals from externalities that have the "same sign" may turn out to be impossible, by contrast, in the case of positional goods, we have a problem of over-provision, because all agents may try to consume positive amounts of these goods, neglecting to consider the externality on others. For public goods, an undersupply, for positional goods, it signifies an over-supply. In other words, in positional competitions, people work harder to compete and consume more than they would under optimal conditions.
Some economists, such as Robert Frank, argue that positional goods create externalities and that "positional arms races" can result for goods that might boost one's social status relative to others. This phenomenon, Frank argues, is clearly bad for society, and thus government can improve social welfare by imposing a high luxury tax on certain luxury goods to correct for the externality and mitigate the posited social waste.[9]
However, in some cases it may be less clear that such government intervention is warranted in response to these externalities.[1] For example, in certain cases, such government actions can potentially impede improvements in living standards and innovation. Technological advance itself is possible in part because wealthy individuals are willing to be first purchasers of new and untested goods (e.g., early cellphone models in the early 1990s). There is a certain experimentation and risk that accompany luxury goods, and if they are found to be useful they may eventually be mass-produced and made affordable to the common person: one era's luxuries are another's commonplace goods. In short, the negative positional externality can be compensated by the public goods of infant industry effects and research and development.[10]
In his response to the cited article by Kashdan and Klein, Robert Frank wrote the following:
In the short run, the tax would not change the total level of spending. Rather, it would shift the composition of spending in favor of investment. Innovation is hardly confined to the consumption sector. Producers of capital goods also have strong incentives to come up with useful innovations. And with the greater aggregate investment spending caused by a consumption tax, more resources than before would be available for research and development. There is thus no reason to expect innovation to slow down, even in the short run. In the long run, which is what really counts for the point Kashdan and Klein are attempting to make, their argument collapses completely. Higher rates of investment mean a higher rate of income growth, which means that consumption along the high-savings trajectory will eventually exceed what it would have been had we remained on the low-savings trajectory. From that point forward, there would be more expenditure on innovation in both the consumption and capital goods sectors...[11]
Definitions
Towers in San Gimignano
One early instance of positional economy comes from San Gimignano – a Tuscan medieval town that has been described as the Manhattan of the Middle Ages because of its towers (in the past there were about eighty towers). Towers were not built by aristocratic families to live in them, but to "demonstrate" to community, their power, affluence, and status of each family. In this case, the owner of a tower consumed a positive level of positional good, like power, instead the family which did not own a tower or owned a lower building consumed a negative level of positional good, that is, it consumed the exposure stemming from the power of the owner. For this reason, there is a zero-sum game in the family consumptions. There is a party consuming a positive amount of positional good and at the same time there is a counterparty consuming a negative amount of such a good. The aristocratic family – owners of a tower – enjoyed the positive consumption of the positional good, namely it had a positive utility deriving from the positional good. On the contrary, the family – non-owners of a tower – suffered from the negative consumption of the positional good (the consumption of exposure to power of others), namely it had a negative utility. For this reason, there is a zero-sum game in the family utilities.
Towers were not built stuck to each other; it would have reduced the construction costs because a part of walls would be shared. Instead, among towers there is a gap, but this gap is not large enough for a person to pass through; it is the size of a brick. The reason of this gap and its size is to keep costs of construction high, and to deny the positive consumption of a positional good to families which were not rich enough to build the entire edifice. For this reason, positional good is related to a higher pricing. The case of San Gimignano's towers explains three meanings of positional good, each one resting on the idea of social scarcity: 1) the first one based on a zero-sum game in the consumptions, 2) the second one based on a zero-sum game in the payoffs (utilities), and 3) the third one related to higher pricing mechanism to deny the consumption of others.[1]
The definition centered on a zero-sum game in the consumptions is originated from contributions of Ugo Pagano: When one party's level of consumption is positive, then at least one other party's level of consumption must be negative. However while the dimension of positional good is binary, the net (utility) impact of a positional good may be positive, zero, or negative. The individual utility derives from the individual preferences on the level of consumption. If reasonable conditions – positive (negative) consumptions imply positive (negative) utilities – hold, then a second kind of definition of positional goods may be formulated: Zero-sum game in the payoffs. Positional goods are goods whose utility of their consumptions is relative (negatively) to the consumption of the others.
A last definition of positional good derives from the so-called "Veblen effect", which is witnessed whenever individuals are willing to pay higher prices for functionally equivalent goods (a significant example is the luxury goods market). The Veblen effect also implies that a sufficient decrease in price leads not to an increase in demand, but to a decrease, because the social status derived from acquiring the goods in question may fall (remember the role of gap among San Gimignano's towers). In this respect, positional goods are goods for which the satisfaction derives (at least in part) from higher pricing.
This brings us to an intriguing parallel between positional goods, such as "luxury goods", and what are known as "Giffen goods". Rae observed that in the case of "mere luxuries", while a halving of the price would require a doubling in the number of units purchased, in order to satisfy vanity to the same extent, a reduction of the price to a small fraction of its previous level would reduce demand to zero. Cournot also admitted that some goods "of whim and luxury ... are only desirable on account of their rarity and of the high price which is the consequence thereof ... [i]n this case a great fall in price would almost annihilate the demand" (cf. Schneider[5]).
Triad of economic goods
People constantly compare themselves to their environments and care greatly about their relative positions, which influence their choices. Therefore, it could be argued that the paradigm of homo economicus should be extended, so that positional goods are included in theories of individual consumption and social concerns are considered among the basic motivations for individual economic behaviour. The triad of economic goods – private, public, and positional goods – can be defined in terms of individual and total consumption. Private goods are characterized by the fact that they are consumed only by single individuals. The exclusion of others from positive amounts of consumption is impossible in the case of public goods. Instead, when some individuals consume positional goods, other individuals must be included in the consumption of related negative quantities.
A pure positional good can be defined as a good of which a certain amount of positive consumption by one agent is matched by an equally negative amount of consumption by another agent. That is, in the case of positional goods, individuals' consumption levels have opposite signs. However, in the case of certain positional goods, such as Olympic medals, one may talk of new positional products created out of nothing; such products do not result in negative externalities, especially if even last place at the Olympics is viewed as prestigious enough to bring positive utility to the competitor.
The distinction among private, public and positional goods brings different rules for deriving total demand. In a diagrammatic view,[12] total demand of a private good is the horizontal sum of individual demands. For a public good, instead, total demand is the Samuelsonian vertical summation of individual demands. Finally, for positional goods, the optimal level of consumption does not coincide, as it does in the case of private goods, with the intersection of any individual marginal rate of substitution curve with the marginal cost curve since an externality emerges for the consumption of other.
Thus, it is necessary to first calculate the total marginal rate of substitution and, consequently, find the intersection with the marginal cost curve. As in the case of public goods, the total marginal rate of substitution is calculated by the summation of individual marginal rates of substitution. But in the case of positional goods, one marginal rate of substitution is subtracted since there is negative consumption. Therefore, the total marginal rate of substitution is the difference between the two individual marginal rates of substitution.
In economics, utility is a measure of the satisfaction that a certain person has from a certain state of the world. Over time, the term has been used in two different meanings.
In economics, an indifference curve connects points on a graph representing different quantities of two goods, points between which a consumer is indifferent. That is, any combinations of two products indicated by the curve will provide the consumer with equal levels of utility, and the consumer has no preference for one combination or bundle of goods over a different combination on the same curve. One can also refer to each point on the indifference curve as rendering the same level of utility (satisfaction) for the consumer. In other words, an indifference curve is the locus of various points showing different combinations of two goods providing equal utility to the consumer. Utility is then a device to represent preferences rather than something from which preferences come. The main use of indifference curves is in the representation of potentially observable demand patterns for individual consumers over commodity bundles.
In mainstream economics, economic surplus, also known as total welfare or total social welfare or Marshallian surplus, is either of two related quantities:
In economics, an externality or external cost is an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's activity. Externalities can be considered as unpriced goods involved in either consumer or producer market transactions. Air pollution from motor vehicles is one example. The cost of air pollution to society is not paid by either the producers or users of motorized transport to the rest of society. Water pollution from mills and factories is another example. All consumers are made worse off by pollution but are not compensated by the market for this damage. A positive externality is when an individual's consumption in a market increases the well-being of others, but the individual does not charge the third party for the benefit. The third party is essentially getting a free product. An example of this might be the apartment above a bakery receiving the benefit of enjoyment from smelling fresh pastries every morning. The people who live in the apartment do not compensate the bakery for this benefit.
This aims to be a complete article list of economics topics:
In sociology and in economics, the term conspicuous consumption describes and explains the consumer practice of buying and using goods of a higher quality, price, or in greater quantity than practical. In 1899, the sociologist Thorstein Veblen coined the term conspicuous consumption to explain the spending of money on and the acquiring of luxury commodities specifically as a public display of economic power—the income and the accumulated wealth—of the buyer. To the conspicuous consumer, the public display of discretionary income is an economic means of either attaining or of maintaining a given social status.
Marginalism is a theory of economics that attempts to explain the discrepancy in the value of goods and services by reference to their secondary, or marginal, utility. It states that the reason why the price of diamonds is higher than that of water, for example, owes to the greater additional satisfaction of the diamonds over the water. Thus, while the water has greater total utility, the diamond has greater marginal utility.
The theory of consumer choice is the branch of microeconomics that relates preferences to consumption expenditures and to consumer demand curves. It analyzes how consumers maximize the desirability of their consumption, by maximizing utility subject to a consumer budget constraint. Factors influencing consumers' evaluation of the utility of goods include: income level, cultural factors, product information and physio-psychological factors.
In economics and consumer theory, a Giffen good is a product that people consume more of as the price rises and vice versa—violating the basic law of demand in microeconomics. For any other sort of good, as the price of the good rises, the substitution effect makes consumers purchase less of it, and more of substitute goods; for most goods, the income effect reinforces this decline in demand for the good. But a Giffen good is so strongly an inferior good in the minds of consumers that this contrary income effect more than offsets the substitution effect, and the net effect of the good's price rise is to increase demand for it. This phenomenon is known as the Giffen paradox. A Giffen good is considered to be the opposite of an ordinary good.
A Pigouvian tax is a tax on any market activity that generates negative externalities. The tax is normally set by the government to correct an undesirable or inefficient market outcome and does so by being set equal to the external marginal cost of the negative externalities. In the presence of negative externalities, social cost includes private cost and external cost caused by negative externalities. This means the social cost of a market activity is not covered by the private cost of the activity. In such a case, the market outcome is not efficient and may lead to over-consumption of the product. Often-cited examples of negative externalities are environmental pollution and increased public healthcare costs associated with tobacco and sugary drink consumption.
A Veblen good is a type of luxury good, named after American economist Thorstein Veblen, for which the demand increases as the price increases, in apparent contradiction of the law of demand, resulting in an upward-sloping demand curve. The higher prices of Veblen goods may make them desirable as a status symbol in the practices of conspicuous consumption and conspicuous leisure. A product may be a Veblen good because it is a positional good, something few others can own.
Welfare economics is a field of economics that applies microeconomic techniques to evaluate the overall well-being (welfare) of a society. This evaluation is typically done at the economy-wide level, and attempts to assess the distribution of resources and opportunities among members of society.
In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not transferable.
In economics, a complementary good is a good whose appeal increases with the popularity of its complement. Technically, it displays a negative cross elasticity of demand and that demand for it increases when the price of another good decreases. If is a complement to , an increase in the price of will result in a negative movement along the demand curve of and cause the demand curve for to shift inward; less of each good will be demanded. Conversely, a decrease in the price of will result in a positive movement along the demand curve of and cause the demand curve of to shift outward; more of each good will be demanded. This is in contrast to a substitute good, whose demand decreases when its substitute's price decreases.
Utility maximization was first developed by utilitarian philosophers Jeremy Bentham and John Stuart Mill. In microeconomics, the utility maximization problem is the problem consumers face: "How should I spend my money in order to maximize my utility?" It is a type of optimal decision problem. It consists of choosing how much of each available good or service to consume, taking into account a constraint on total spending (income), the prices of the goods and their preferences.
A luxury tax is a tax on luxury goods: products not considered essential. A luxury tax may be modeled after a sales tax or VAT, charged as a percentage on all items of particular classes, except that it mainly directly affects the wealthy because the wealthy are the most likely to buy luxuries such as expensive cars, jewelry, etc. It may also be applied only to purchases over a certain amount; for instance, some U.S. states charge luxury tax on real estate transactions over a certain limit.
A Lindahl tax is a form of taxation conceived by Erik Lindahl in which individuals pay for public goods according to their marginal benefits. In other words, they pay according to the amount of satisfaction or utility they derive from the consumption of an additional unit of the public good. Lindahl taxation is designed to maximize efficiency for each individual and provide the optimal level of a public good.
In economics, a demerit good is "a good or service whose consumption is considered unhealthy, degrading, or otherwise socially undesirable due to the perceived negative effects on the consumers themselves"; it could be over-consumed if left to market forces of supply and demand. Examples of demerit goods include tobacco, alcoholic beverages, recreational drugs, gambling and junk food. Because of the nature of these goods, governments often levy taxes on these goods, in some cases regulating or banning consumption or advertisement of these goods.
Within economics, margin is a concept used to describe the current level of consumption or production of a good or service. Margin also encompasses various concepts within economics, denoted as marginal concepts, which are used to explain the specific change in the quantity of goods and services produced and consumed. These concepts are central to the economic theory of marginalism. This is a theory that states that economic decisions are made in reference to incremental units at the margin, and it further suggests that the decision on whether an individual or entity will obtain additional units of a good or service depending on the marginal utility of the product.
In economics, marginal utility describes the change in utility of one unit of a good or service. Marginal utility can be positive, negative, or zero.
↑ Hirsch, Fred (1977). The Social Limits to Growth. London: Routledge & Kegan Paul. ISBN0-674-81365-0.
1 2 Schneider, M. (2007). "The Nature, History and Significance of the Concept of Positional Goods". History of Economics Review, 45: 60-81.{{cite journal}}: Cite journal requires |journal= (help)
↑ Ugo Pagano and Massimiliano Vatiero (2017). "Positional Goods and Legal Orderings", in Marciano A. and G.B. Ramello (Eds.), Encyclopedia of Law and Economics, Springer, pre-print version on SSRN3047156
↑ Pagano, Ugo (1999). "Is Power an Economic Good? Notes on Social Scarcity and the Economics of Positional Goods". In Bowles S., Franzini M. and U. Pagano (Eds.), The Politics and the Economics of Power, London: Routledge, pp. 116-45.{{cite journal}}: Cite journal requires |journal= (help)
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