Positional good

The term was coined by Austrian-British financial journalist Fred Hirsch, and the concept has been refined by American economics professor Robert H. Frank and Italian economist Ugo Pagano.

The term is sometimes extended to include services and non-material possessions that may alter one's social status and that are deemed highly desirable when enjoyed by relatively few in a community, such as college degrees, achievements, awards, etc.

Thus, some economists (such as Robert H. Frank and Ugo Pagano) include only goods (like status and power) which are valued specifically because of their relative quality.

The broad theme of Hirsch's book was, he told The New York Times, that material growth can "no longer deliver what has long been promised for it – to make everyone middle-class".

That is, competition for positional goods is a zero-sum game: Attempts to acquire them can only benefit one player at the expense of others.

In other words, in positional competitions, people work harder to compete and consume more than they would under optimal conditions.

In short, the negative positional externality can be compensated by the public goods of infant industry effects and research and development.

In his response to the cited article by Kashdan and Klein, Robert Frank wrote the following: In the short run, the tax would not change the total level of spending.

And with the greater aggregate investment spending caused by a consumption tax, more resources than before would be available for research and development.

In the long run, which is what really counts for the point Kashdan and Klein are attempting to make, their argument collapses completely.

From that point forward, there would be more expenditure on innovation in both the consumption and capital goods sectors...[11]One early instance of positional economy comes from San Gimignano – a Tuscan medieval town that has been described as the Manhattan of the Middle Ages because of its towers (in the past there were about eighty towers).

The case of San Gimignano's towers explains three meanings of positional good, each one resting on the idea of social scarcity: 1) the first one based on a zero-sum game in the consumptions, 2) the second one based on a zero-sum game in the payoffs (utilities), and 3) the third one related to higher pricing mechanism to deny the consumption of others.

Rae observed that in the case of "mere luxuries", while a halving of the price would require a doubling in the number of units purchased, in order to satisfy vanity to the same extent, a reduction of the price to a small fraction of its previous level would reduce demand to zero.

People constantly compare themselves to their environments and care greatly about their relative positions, which influence their choices.

The distinction among private, public and positional goods brings different rules for deriving total demand.

Finally, for positional goods, the optimal level of consumption does not coincide, as it does in the case of private goods, with the intersection of any individual marginal rate of substitution curve with the marginal cost curve since an externality emerges for the consumption of other.