Positional goods and social welfare: a note on George Pendleton Watkins’ neglected contribution

Abstract

Watkins's analysis of adventitious utility contains many aspects that are connected to the contemporary debate on positional goods. First, Watkins adventitious utility emerges from a process of social exclusion and can create negative externalities, in the sense that positive consumption of one individual implies negative consumption by another individual. Not only it creates negative externalities on other individuals, but it can initiate a race-to-the-bottom, where individuals waste an increasing amount of money on goods which do not possess any real utility.

Keywords:

• Watkins, George P.
• positional goods
• consumption

Acknowledgments

Massimiliano Vatiero gratefully acknowledges financial support from Fondo Brenno Galli. This article has benefited from correspondence and conversation with Robert A. Frank, Ugo Pagano, Malcolm Rutherford, Stefano Zamagni, and two anonymous referees.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 Several definitions of positional goods can be found in the literature. Probably the most comprehensive is the one provided by Michael Schneider (2007, 62) who describes positional goods as “goods of which it is true that for some of the members of a society part or all of the satisfaction derived from possessing them is the enhancement of social status due to the fact that such satisfaction is possible only for a minority.”

2 See the historical survey in Ancil and Hakes (1991) and Schneider (2007).

3 Our biographical sketch of Watkins is based on two obituaries that appeared on the New York Times (Dr. George P Watkins 1933) and on the Journal of the American Statistical Association (Stevens 1934).

4 Watkins was also known as an expert in public utility ratemaking, and his volume on electric rates (Watkins 1921) was regarded as one of the most authoritative works in the field (Bauer 1922).

5 The Hart, Schaffner, and Marx prize was established with the intent “to draw the attention of American youth to the study of economic and commercial subjects” (Watkins 1915, v). First prize included a $1000 award, second prize a $500 award. The annual award committee consisted of three to five members, which generally included leading figures of the time such as Laurence Laughlin, John B. Clark, Wesley C. Mitchell, Edwin F. Gay, and Henry C. Adams. Frank Knight, Hazel Kyrk, Edwin Nourse, Harold Moulton, and Edgar Furniss are a few of the scholars who won either first or second prize.

6 Watkins (viii) also acknowledged that “the manuscript has been subjected to the criticism of Professor Alvin S. Johnson, who acted in place of Professor Clark as a judge of the papers submitted to the Hart, Schaffner & Marx Committee.” Albeit a pupil and a follower of Clark, Johnson was somewhat sympathetic to institutional economics.

7 Watkins was adamant in emphasizing the quantitative dimension of utility. In his view, “utility is always thought of quantitatively,” in the sense that “there is always present at least an implied or latent quantitative comparison with the utility of other goods” (2).

8 Interestingly, Watkins (26) – like Francis Y. Edgeworth (1881), but without referring to him – considered diminishing marginal utility as a “corollary” of Weber and Fechner's law of psycho-physical relations. By postulating a logarithmic connection between physical stimuli and corresponding sensation, the law implied that the rate of increase of a sensation decreases as the stimulus increases.

9 See Watkins's (83–90) discussion of complementary utility.

10 Watkins wrote: “In the chapters on adventitious utility the writer is greatly indebted to Thorstein Veblen's brilliant contribution to sociology as well as to economics, The Theory of the Leisure Class, which develops the theory of adventitious utility in a different way and under other names” (146 n1).

11 Hirsch (1976, 52), the father of the notion of positional goods, made a strikingly similar point: “By positional competition is meant competition that is fundamentally for a higher place in society within some explicit or implicit hierarchy and that thereby yields gains for some only by dint of losses for others. Positional competition, in the language of game theory, is a zero-sum game: what winners win, losers lose.” Watkins and Hirsch, however, move from somewhat different premises. Watkins emphasizes the rival nature of adventitious utility while in Hirsch is the inherently hierarchical nature of status that makes positional competition a zero-sum game.

12 In discussing the inefficiencies generated by adventitious utility Watkins (143–144) referred to the “small feet of Chinese women” as “an adventitious by-product of civilization.” Watkins's example comes very close to Darwin's male peacock tail. While the tail might indeed draw the attention of females, it also cost precious resources that could help its owner survive in a harsh environment. We thank one referee for pointing out to us this parallel.

13 This phenomenon is referred to by Robert H. Frank (1985) as the “positional treadmill.”

14 Watkins (149) referred to Immanuel Kant (1909, 47) asserting: that “so long as human nature remains what it is, some men, if they have the pecuniary wherewithal, will seek to make others mere means to their ends.”

15 Differently from Watkins, several authors have advocated Pigouvian taxation as a way of limiting positional externalities, for essentially the same reasons that effluent taxes may mitigate the costs of pollution (e.g.,Boskin and Sheshinski 1978; Frank 2009; Hopkins and Kornienko 2004).

16 According to Watkins (147), “inequality in the distribution of income is very clearly the foundation for the sort of adventitious utility that depends upon a class standard.” Over the last years, the idea that conditions of high levels of income inequality cause greater attention to positional goods has received both theoretical and empirical support (Bowles and Park, 2005; Wilkinson and Pickett 2009). More recently, advocates of the so-called “social-rank hypothesis” (see, among others, Walasek and Brown 2015) have argued that greater concern with apparent status may be a rational response to higher income inequality. Visible cues, such as ownership of positional goods, provide more reliable signals of social rank in more unequal societies, leading to a rationally greater concern about maximizing apparent income-related social status when income inequality is high.

17 Generally attributed to Samuelson, who mathematically formalised it (1954), the standard definition of public good in terms of non-rivalry in consumption and non-excludability in access was first carved by Musgrave (1941). See Desmarais-Tremblay (2017).

18 Benedetto Gui (1987, 37) defines relational goods as “non-material goods which are not services that are consumed individually but are tied to interpersonal relations.”

19 Stefano Zamagni (1999, 119), for instance, has pointed out that “the most effective antidote to positional competition is to expand the production and consumption of relational goods.” See also Bruni and Zamagni (2007) and Gui and Sudgen (2005).