A Model of Veblenian Growth

This paper introduces a signalling model of conspicuous consumption in the context of an endogenous growth model. Agents purchase luxury goods to signal their social status. 'Invidious Comparison' takes place when rich agents successfully identify themselves, whereas 'Pecuniary Emulation' takes place when some poor agents succeeded in emulating the rich. Demand for new design is created during 'Pecuniary Emulation' as rich agents seek to purchase a good of superior quality in order to distinguish themselves from the poor. The growth process is characterized by creative destruction, and the economy is shown to switch between 'Invidious Comparison' and 'Pecuniary Emulation' along the growth path.