University of Cagliari
Do Quality Ladders Rationalise the Observed Engel Curves?
19 December 2008
Nell'ambito del ciclo di "seminari del venerdì" del Dipartimento di Economia e Crenos, venerdì 19 dicembre, alle ore 12, nell'Aula Magna della Facoltà di Economia, in viale S. Ignazio 74, si terrà il seguente seminario:
V. Merella, Università di Cagliari
Do Quality Ladders Rationalise the Observed Engel Curves?
Abstract
Observed Engel curves are irregularly shaped. A given type of good may therefore be
regarded as a luxury only at some levels of wealth. This paper rationalizes this evidence
by arguing that substitution to higher-quality goods as wealth increases not only implies
that virtually every good of a given quality becomes inferior at some level of wealth. It
also amends the notion of luxury good: a change in wealth, producing (possibly) different
variations in the quality levels, causes heterogeneous spending responses across the
various types of goods. The resulting Engel curves bend upwards or downwards
depending on whether the increases in quality for the single goods are higher than the
average quality improvement of the consumption bundle. As a result, it is the relative cost
of quality-upgrading to dictate whether a good must be regarded as a luxury. The
proposed theory may open new debates in the literature of the economics of innovation,
and in macroeconomic fields where recent contributions show the importance of nonhomothetic
demand, namely economic growth and international trade.