Fashion and wealth accumulation (Q1306646)

This paper considers an economy with two groups of agents and models fashion as an externality generated by a dependence of individual agents' time preference on the two groups' per-capita consumption habits. In contrast to the earlier models of time preference, this paper postulates that an agent's discount rate depends only on per-capita consumption habits rather than on the agent's own consumption or habit. It is shown that stronger and more persistent fashion is more likely to generate limit cycles in wealth.