Positional Good

Background

In economics, the concept of positional goods describes items whose value is largely derived from their social standing or the differentiation from others’ possessions. These goods are often coveted not just for their intrinsic utility but also because they confer a certain level of status or exclusivity to the owner.

Historical Context

The idea of positional goods traces back to the work of economist and sociologist Thorstein Veblen, who introduced the concept of “conspicuous consumption” in his book The Theory of the Leisure Class (1899). He explored how individuals derive utility from public displays of abundance that typify status among peers. Furthermore, the concept was refined and discussed extensively by Fred Hirsch in his book The Social Limits to Growth (1976), where he outlined the scarcity and competition inherent in positional goods.

Definitions and Concepts

1. Positional Good: A good whose value to a consumer depends on the ranking or the position of the good in terms of desirability or status as perceived by others.

2. Social Status: One of the critical attributes that make positional goods valuable as they confer social distinction on their owner.

3. Relative Consumption: The idea that the value of a good can vary depending on how much is consumed relative to the consumption by others.

Major Analytical Frameworks

Classical Economics

Classical economics focuses on intrinsic value and would not primarily emphasize the externalities imposed by social comparison.

Neoclassical Economics

Acknowledges consumer preferences but often overlooks the interplay of social status and relative consumption in valuation.

Keynesian Economics

Would consider how demand for positional goods might differ in varying economic climates due to relative wealth effects.

Marxian Economics

Views positional goods in the context of social classes and capitalist production modes that perpetuate inequities.

Institutional Economics

Studies how societal norms and institutions influence the value and distribution of positional goods.

Behavioral Economics

Focuses on psychological aspects of consumer behavior, examining motivations like status-seeking and relative happiness from possessing positional goods.

Post-Keynesian Economics

Investigates how markets for positional goods can lead to demand side instabilities due to perceived inequalities.

Austrian Economics

Examines individual subjective valuation, including how status-oriented possessions reflect personal priorities within a market context.

Development Economics

Analyzes how developmental disparities between countries influence access and valuation of positional goods.

Monetarism

While primarily concerned with macroeconomic monetary policies, might consider how inflation and currency values affect the affordability of positional goods.

Comparative Analysis

Different economic schools provide various insights when analyzing positional goods. A neoclassical approach might emphasize optimizing individual utility, while a Marxian approach would highlight the social stratification perpetuated by demand for such goods. Behavioral economics would delve into the psychological motivations behind social comparison, and institutional economics would explore the roles of societal norms in shaping consumption patterns.

Case Studies

1. Luxury Car Market: Demonstrates how the status associated with owning certain luxury brands elevates their value beyond utility.
2. Real Estate in Exclusive Neighborhoods: Shows how location prestige magnifies property values.
3. Private Education: Highlights the role of exclusivity in the perceived superior quality of education at prestigious institutions.

Suggested Books for Further Studies

1. The Theory of the Leisure Class by Thorstein Veblen
2. The Social Limits to Growth by Fred Hirsch
3. Conspicuous Consumption by Till Grüne-Yanoff
4. Status Anxiety by Alain de Botton
5. Richistan: A Journey Through the American Wealth Boom and the Lives of the New Rich by Robert Frank

Related Terms with Definitions

• Conspicuous Consumption: Expenditure on or consumption of luxuries on a lavish scale as a public display of wealth.
• Veblen Goods: A type of good for which demand increases as the price increases because of its exclusive nature and appeal as a status symbol.
• Giffen Goods: Inferior goods for which an increase in price leads to an increase in quantity demanded, due to strong income effects.
• Utility: A measure of satisfaction or happiness that a consumer derives from consuming goods and services.
• Relative Income Hypothesis: The notion that an individual’s sense of well-being is dependent on their relative income level compared to others rather than their absolute income level.