Show Me the Money: Status, Cultural Capital, and Conspicuous Consumption

Abstract

This study presents a general model of conspicuous consumption in which two partly visible goods serve as a signal of dual unobserved individual attributes (wealth and wisdom). In addition to a classic Veblen good, a more sophisticated cultural conspicuous-consumption good is introduced. Agents' ability to use this sophisticated good is mediated by their level of wisdom: smart agents can choose and send a better signal and, just as important, are better able to interpret such signals. Other agents lack the ability to differentiate between high and low signals and, therefore, cannot use the sophisticated good properly.The analysis pertains mainly to two possible extreme equilibria: elite (smart agents who buy the conspicuous-consumption good) and nouveaux riches (rich agents who buy the conspicuous-consumption good). In both equilibria, a select group uses the signal to distinguish itself from others, thereby allowing a social upper class to take shape. We provide existence and uniqueness conditions for such equilibria and show that the introduction of a cultural conspicuous-consumption product may sustain an elite equilibrium that cannot be supported in a classic conspicuous-consumption product environment. We then show that higher levels of inequality and materialism are associated with nouveau riche equilibrium while lower levels of inequality and high relative importance of intellectualism are linked with an elite equilibrium.