INTERACTIONS BETWEEN PREFERENCES AND CONSUMPTION IN ECONOMIC DEVELOPMENT
| Published date | 01 February 1973 |
| DOI | http://doi.org/10.1111/j.1467-9485.1973.tb00870.x |
| Date | 01 February 1973 |
Scorrish
Journal
of
Political
Economy
Vol.
XX,
No.
1
INTERACTIONS BETWEEN PREFERENCES
AND CONSUMPTION IN ECONOMIC
DEVELOPMENT
BRUNO
S.
FREY
I
INTRODUCTION
Few would deny that economic growth does
not
necessarily
raise the
happiness
of
people experiencing it. Welfare
may
very well rise or fall with
economic growth. This holds true even if (i) growth is measured in
real
terms, (ii) growth is taken as the rise of
consramption
per
head
and (iii)
income distribution
has not worsened. Even
if
all
social
costs
going with
growth would be taken into account,’ it would still not be self-evident that
there exists in general a positive association between economic growth and
welfare.
Despite this observation, most economic theories (and in particular the
formal ones) state that utility or welfare is positively related to consumption.2
It is suggested
in
this paper that the observed lack
of
correspondence
between utility and consumption lies in the fact that (i) consumers’
preferences
change
over time and that (ii) these changes are mainly
induced
by consumption. Preferences are treated as
an
endogenous part
of
the
economic (or social) system. Thus a further step is taken away from the
traditional assumption of economic theory, that both technology and prefer-
ences are exogenously given. Today, however, in many models technological
change
is
of an induced kind,3 and it seems only logical to extend the
approach to consumers’ preferences as well.
Preferences changes are one of the main objects of study by sociologists.
In
economics, however, there have been but a few attempts at
a
formal
introduction of them into the body of theory (beyond some passing remarks).
Among earlier economic writers there is, of course, the notable exception
of
Veblen
(1899).
Today, names such as Duesenberry, Nurkse,
Simon,
Katona,
Galbraith and especially Boulding miist be mentioned.There are also some
recent technical papers by Peston
(1967),
Pollak
(1970)
and
v.
Weizsaecker
(1971).
In
part
11
of this paper a formal model of the interaction of preferences
and consumption is developed in terms of
a
set
of
differential equations.
They allow
us
to derive
a
typology of societies with regard to how prefer-
ences react to changes in consumption and to how the supply of consumption
See
e.g.
Kapp (1969); Mishan (1969).
This
assertion
hardly needs proof.
See
e.g.
Koopmans (1967), Solow (1970).
The
best known attempts are by Kaldor and Mirrlees (1962) and
Arrow
(1962).
See also Kennedy and Thirlwall(1972).
53
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