Conspicuous Consumption and Inequality

We analyze the change in consumer demand following a mean preserving change in consumption inequality when there is conspicuous consumption. We model interdependent preferences including “keeping up with the Joneses” (imitating others) and “running away from the Joneses” (distinguishing oneself from others) with multiple peer groups and peer group effects (envy and snob effects). An individual not directly involved in the redistribution increases consumption of the more conspicuous good when she demonstrates i) ‘keeping up’ and a relatively stronger envy effect, or ii) ‘running away’ and a relatively stronger snob effect. Behaviors generated by existing models emerge as special cases.