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Thus, among the socio-economic indicators, education improves health behaviours and health potentially the most. For fixed length of life T , when starting off with a higher level of health, cumulatively the relative marginal value of health has to be lower over the life cycle, leading to cumulatively unhealthier behaviour and lower health investment, in order to arrive at H min over the same duration of life T. When T can be optimally chosen, individuals with greater endowed health are healthier throughout life, and live longer Propositions 6 and 7. For small life extension, healthier individuals value health more than in the fixed T case, but cumulatively still less than for the unperturbed path, and life is extended to T I.

For intermediate life extension, the relative marginal value of health is cumulatively higher compared with the unperturbed path, but health is still valued less in old age. Life is extended to T II. For large life extension, the relative marginal value of health is higher at all ages, and life is extended to T III. In such a scenario, healthy individuals care more about their health as for them investment pays off in terms of a longer lifespan over which the benefits of health, consumption, and leisure may be enjoyed.

Since health investment increases in the value of health see 15 and 17 it follows similar patterns in these three scenarios. Important variation exists across individuals both in the type of work and in the amount of time spent working, during a day and over the life cycle. We first discuss variation in the type of work and then turn to time spent working. Permanently higher wages, e. Empirical evidence suggests that high SES individuals on average work in less demanding occupations Ravesteijn et al.

This suggests that higher SES increases the marginal costs of job-related health stress more than it increases its marginal benefits. The effect of health on job-related health stress is plausibly positive. Better health reduces sick time, which increases the marginal benefit of job-related health stress. Further, if the relative marginal value of health decreases in health Propositions 5 and 7 , then healthier individuals will have lower marginal costs of engaging in job-related health stress. With higher benefits and lower costs, we expect the healthy to engage in unhealthy jobs, consistent with empirical evidence Kemna, Hence, the model produces a phase of life in old age that naturally qualifies as retirement.

During working life, individuals divide their time between work, leisure and time inputs into consumption and health investment see 6. Therefore, we can infer the effect on the time spent working by investigating effects on leisure and time inputs. This leads wealthier individuals, ceteris paribus , to work less see 6 , and hence retire earlier, in line with empirical evidence Imbens et al. The higher opportunity cost of not working encourages higher educated individuals to retire later.

Thus, the wealthy retire earlier, but the higher educated and those with higher permanent wages may retire later. Healthier individuals spend more time working, as good health reduces sick time and reduces the demand for time inputs into health investment Propositions 5 and 7. This encourages healthier individuals to work more and retire later see 6. However, health is also associated with a wealth effect, reducing the marginal value of wealth q A t see Table 2 in online Appendix C , which increases the demand for leisure and for time inputs into healthy and unhealthy consumption, and thereby encourages early retirement.

This is consistent with an extensive literature showing quantitatively large effects of health on labour force participaton, with unhealthier individuals retiring earlier Currie and Madrian, ; Smith, Under plausible assumptions, healthier individuals retire later.

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This, combined with an effect of health on earnings, leads to reverse causality as healthier individuals accumulate more wealth by earning more and retiring later. We have developed a theory of the relation between health and SES over the life cycle. Our life-cycle model incorporates health, longevity, wealth, earnings, education, work, job-related physical and psychosocial health stressors, leisure, health investment e. Our review of the literature identifies these as essential mechanisms in the formation and evolution of disparities in health.

The theory is capable of reproducing stylised facts regarding the life-cycle profiles of health and health investment, as illustrated by calibrated simulations of the model. The theory is further able to reproduce stylised facts characteristic of the SES-health gradient. We find that greater SES, as measured by wealth, earnings and education, induces a healthy lifestyle: it encourages investment in health, encourages healthy consumption, discourages unhealthy consumption and protects individuals from the health risks of physically and psychosocially demanding working conditions.

The healthier lifestyle of high SES individuals causes the health trajectories of high and low SES individuals to diverge. As a result, they are healthier and live longer Propositions 2 — 4.


In addition, health generates earnings and the worsening health of low SES individuals potentially leads to early withdrawal from the labour force Prediction 4. This reverse causality from health to financial measures of SES potentially reinforces the widening of the SES-health gradient, as documented in empirical studies Smith, In middle to late life, the divergence of health trajectories potentially slows as lower levels of health encourages low SES individuals to invest more in health and engage in healthier behaviour in order to slow down their health deterioration Propositions 3 and 4.

Also, mortality selection, i. Apart from providing a framework to interpret stylised facts, the theory also makes novel testable predictions and provides new intuition. In particular, we emphasise the importance of our concept of a health cost benefit of unhealthy healthy behaviours, in explaining health behaviour. Individuals make decisions regarding health by taking into account not just monetary prices and preferences, but additionally the life-time health consequences of their choices, as embodied by the health cost benefit.

Variation in the health cost over the life cycle and across SES potentially explains several empirical phenomena. For example, we predict that individuals in mid-life, particularly the healthy and poor, engage in work associated with unhealthy working conditions as they value the associated wage premium. However, as individuals age they engage in healthier work, as the health cost of unhealthy working conditions increase with declining health Prediction 1.

Another implication of our concept of a health cost is a pattern in which high SES individuals consume more of moderately unhealthy consumption goods e.

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Greater wealth permits more consumption but also increases the health cost. This could provide an explanation for the observation that high SES individuals are less likely to smoke cigarettes bad for health but are more likely to be moderate drinkers moderately bad than low SES individuals Cutler and Lleras-Muney, Another insight is that endogenous longevity is crucial in explaining observed associations between SES and health cf. Propositions 1 , 3 and 4 , and Prediction 2.

Absent ability to extend life fixed horizon , the association between SES and health is small Proposition 1. If, however, life can be extended, SES and health are positively associated and the greater the degree of life extension afforded by SES, the greater is their association Propositions 3 and 4. Thus, health disparities are larger in environments where higher SES individuals can effectively use their resources to extend life Prediction 2.

For example, if the latest medical technology is more easily accessible to higher SES individuals, health disparities across SES groups may be larger.

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In deriving predictions from the comparative dynamic analyses, we have made a number of assumptions, most of which are conventional, such as diminishing marginal utility and Cobb—Douglas production functions. Our calibrated model corroborated other necessary relations. However, one assumption we had to make is that first-order effects dominate second-order effects Assumption 4 in subsection 2. Future work could investigate the sensitivity of results to this assumption, although it is less restrictive than the fairly conventional assumption of functions being additively separable in their arguments, and other potentially stronger assumptions are likely needed to derive unambiguous predictions from the comparative dynamic analyses.

Future work may also extend the model to incorporate the joint determination of SES and health Chiteji, ; Conti et al. Jacobson and Bolin et al. We do not explicitly take into account the influence of the wider social context and social relationships of the family or neighbourhood on health Kawachi and Berkman, or of social capital on health Bolin et al. Insights from the behavioural-economic and psychological literature regarding myopia and lack of self-control Blanchflower et al.

Uncertainty e. Cropper , Dardanoni and Wagstaff , Liljas and Ehrlich The content is solely the responsibility of the authors and does not necessarily represent the official views of the National Institutes of Health. Oxford University Press is a department of the University of Oxford. It furthers the University's objective of excellence in research, scholarship, and education by publishing worldwide. Sign In or Create an Account.

Sign In. Advanced Search. Article Navigation. Close mobile search navigation Article Navigation. Volume Article Contents. Components of a Theory of the Gradient. Dynamics and Numerical Calibration. Discussion and Conclusions. University of Southern California.

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Corresponding author: Titus J. Email: galama usc. Oxford Academic. Google Scholar. Hans van Kippersluis. Cite Citation. Permissions Icon Permissions. Abstract Motivated by the observation that medical care explains only a relatively small part of the socio-economic status SES -health gradient, we present a life-cycle model that incorporates several additional behaviours that potentially explain jointly a large part of observed disparities.

The objective function 1 is maximised subject to three constraints. In this subsection, we discuss the first-order conditions for optimisation. We assume that an interior solution to the optimisation problem exists. Detailed derivations are provided in online Appendix A.

From the first-order conditions follow that lifestyle decisions regarding consumption and occupation provide utility directly or indirectly , and are associated with a monetary cost and with an opportunity cost. Open in new tab Download slide.

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Second, we estimate the hourly wage profile using the PSID data and a Mincer equation of log hourly wages on dummies for each educational level and a quadratic polynomial in age. Several papers contain components of our generalised theory of health. The Grossman model Grossman, a , b contains health and health investment and interactions with earnings, and wealth but lacks other health behaviours.

Ehrlich and Chuma were the first to introduce endogenous longevity, but their model does not include other decisions besides health investment. Forster models the relation between health, longevity, healthy consumption and unhealthy consumption but does not model health investment, wealth accumulation or job conditions. Case and Deaton include unhealthy consumption as well as physical effort on the job, but do not model longevity.

In work independently developed around the same time as our theory, Dalgaard and Strulik , Strulik and Dalgaard and Strulik present the so-called health-deficit models that contain health and health investment and interactions with earnings, labour-force participation and wealth, but lack other health behaviours. Strulik calibrates a related theoretical model in which health behaviour and SES influence health and longevity, but he does not model job conditions.

Ehrlich and Chuma generate a set of directional predictions their table 3 , based on a pioneering comparative dynamic analysis of the Grossman model with endogenous longevity. However, while they are able to generate the sign of the effects broadly whether an effect is more or less likely to be positive or negative , they do not present dynamic results.

Further, they do not consider other health behaviours besides health investment. Ried presents a comparative dynamic analysis of the Grossman model, but his model is limited to the linear case, which has distinct properties Ehrlich and Chuma, ; Galama, Eisenring presents a comparative dynamic analysis of a simple model without consumption, wealth accumulation or health behaviours. While the concept of a health cost benefit of unhealthy healthy behaviour is not new, explicit theoretical modelling is, and so is our formal definition of the concept.

The literature on the value of a statistical life Viscusi and Aldy, focuses on the cost of reductions in life mortality rather than in health morbidity as in our theory. Even the seminal theory of rational addiction Becker and Murphy, , while arguing conceptually for an effect of unhealthy addictive consumption on health, does not explicitly model this effect see Jones et al. To the best of our knowledge, only Forster , Case and Deaton , Strulik and Schuenemann et al.

Case and Deaton's model, however, focuses on the linear case, which has distinct properties Ehrlich and Chuma, ; Galama, And while Forster , Strulik and Schuenemann et al. James Heckman and colleagues have emphasised the role of childhood cognitive and non-cognitive abilities in determining both education and health outcomes in later life Cunha and Heckman, ; Heckman, ; Conti et al. Yet, see, e.

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Albouy and Lequien and Clark and Royer who could not establish a causal effect of education on mortality. Beckett and Baeten et al. Living in an affluent neighbourhood is an expensive, yet health-promoting and utility-generating choice. It is a constrained choice: low SES individuals cannot afford to live in more affluent areas.

We follow Case and Deaton in modelling health behaviours as operating through the deterioration rate d t. These choices are somewhat arbitrary. Mathematically, however, they are equivalent, with the exception that with our current choice, investment is not a direct function of health or health behaviour since the production process does not explicitly depend on them.

In Grossman's original formulation Grossman, a , b length of life T is determined by a minimum health level H min below which life cannot be sustained.

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Imperfect capital markets itself could be a cause of socio-economic disparities in health if low income individuals face greater borrowing constraints and therefore cannot optimally invest in health. While it seems plausible that the health benefits of health investment and healthy consumption exhibit diminishing returns to scale, the health costs of unhealthy consumption and job-related health stress plausibly exhibit increasing returns to scale.

In simple terms: whereas after a certain point more health investment, exercise or consumption of healthy foods, does not prevent eventual ageing, escalating risky behaviour e. Intuitively, health is a resource and having more of it relaxes the dynamic constraint for wealth: being in better health reduces the need for health investment and health provides earnings.

Both health and wealth are resources that enable consumption and leisure. After solving the optimal control problem, the model's solutions can be fully expressed in the state and co-state functions. DeNardi et al. The calibration suggests that a model where health depreciation depends only implicitly on age through the health stock H t , i. However, this model cannot reproduce the quasi-exponentially increasing profile for health investment.

Our understanding from the calibration exercise is that there are two different ways in which one can reproduce the empirical life-cycle profiles of health and health investment: a Grossman-style health accumulation model with health depreciation that depends explicitly on age as well as implicitly on the health stock, e. As outlined in Assumption 4, we assume these second-order effects are quantitatively less important.

Part of the SES-health gradient may be explained by differences in individual's preferences. A lower rate of time preference may also lead to greater investment in education not part of our theory , and hence lead to joint determination of health and education Fuchs, Note that we can restart the problem at any time t , taking A t and H t as the new initial conditions. Thus the comparative dynamic results derived for, e.

Note that it can be understood that the opposite pattern, one of disinvestment early in life and increased investment later in life, is inferior as it would be associated with lower health at all ages and therefore a reduced consumption benefit. An indirect effect operates through the effect that wealth has on health, and health in turn has on the deterioration rate.

The effect of wealth on health is gradual and is therefore at least initially unlikely to drive the effect of wealth on health behaviours. A higher wage rate w E implies that the individual has higher earnings Y t because the direct effect of higher wages is to increase earnings. There are also two secondary effects. First, individuals may work more because of the higher opportunity cost of not working substitution effect. Second, individuals may work fewer hours to spend their increased income on leisure or consumption income effect. Empirical studies suggest that the substitution and income effects are of the same magnitude Blundell and MaCurdy, , and hence that the direct effect of a wage increase is to increase earnings, while the secondary effect is small, consisting of two competing effects that roughly cancel out.

Thus, a higher wage rate translates into higher earnings. Cases are also possible where the relative marginal value of health is initially higher but eventually lower.

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  4. See online Appendix Section D. This case would represent an extreme scenario in which the complementarity between consumption and health in utility is so strong that healthier individuals choose to spend much more on consumption and much less on health investment, living shorter lives.

    This scenario is inconsistent with empirical stylised facts, e. However, after accounting for the endogeneity of health, Galama et al. However, wealthy individuals are healthier Proposition 3 , which reduces sick time and increases the benefit of work earnings. PIP: The environment, on the eve of a new century, has become a major theme for reflection and action in both developed and developing countries. Economists and economic theory have until recently neglected the environment and have implicitly assumed that nature offers unlimited space for expansion and an inexhaustible supply of resources.

    Among natural resources, economists have always distinguished between those whose supply is in no way related to human labor and which are therefore common property, such as air and water, and those whose effective supply depends on labor and for which the appropriation can be private, such as the products of the soil and subsoil. The founders of the discipline of economics defined economic goods as those resulting from the application of labor to nature and which formally belong to a specific individual or group. Spending the Kids' Inheritance originally the title of a book on the subject by Annie Hulley and the acronyms SKI and SKI'ing refer to the growing number of older people in Western society spending their money on travel , cars and property , in contrast to previous generations who tended to leave that money to their children.

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