Abstract :
I develop a dynamic theory of luxury consumption, particularly emphasizing
the causal effect that pursuit of luxury goods has on wealth accumulation. A
quasi-luxury is defined as a good whose marginal rate of substitution is increasing
in a utility index. Under certain conditions, it is indeed a luxury good. When
current wealth holding falls short of (exceeds) long-run needs, luxury consumption
is postponed more (less) easily than necessity consumption, due to a lower
(higher) time preference for luxury and/or a higher intertemporal elasticity of
substitution thereof. Preferences for quasi-luxuries lead to a higher steady-state
value of wealth or capital.
