Positional good
Encyclopedia
In economics
, positional goods are products and services whose value is mostly (if not exclusively) a function of their ranking in desirability by others, in comparison to substitutes. The extent to which a good's value depends on such a ranking is referred to as its positionality. The term was coined by Fred Hirsch in 1976.
Positional goods often earn economic rent
s or quasi-rent
s. Examples of positional goods include high social status
, exclusive real estate
, a spot in the freshman class of a prestigious university, a reservation at the "hottest" new restaurant, and fame. The measure of satisfaction derived from a positional good depends on how much one has in relation to everyone else.
Competitions for positional goods are zero-sum games because such goods are inherently scarce, at least in the short run. Attempts to acquire them can only benefit one player at the expense of others. By definition, every person cannot be the most popular, cool, or elite, in the same way that every person cannot be a star athlete – all of those terms imply a separation or superiority over other people.
Land (in the economic sense)
is similar to positional goods in that it cannot be created, and land rent
arises largely because of a parcel's ranking in desirability against other plots. However, land is valued for its absolute contribution to productivity, which does not derive from its relative ranking. Thus, some economists (such as Hirsch) include 'land' in positional goods, while others (such as Robert H. Frank
) only include goods which are valued specifically because of their relative quality.
In general, positional goods cannot be created, only redistributed, while material goods can be created with time and effort. However, most goods have both a positional and a material component. Fast cars may be considered to be inherently scarce because one's perception of a car's speed depends on its relation to other vehicles, but there is still an absolute value attached to satisfaction gained from the speed at which a car can travel; it can be considered as having a positional aspect in that only some cars can be the fastest. Because a car is a complex product made of many other materials, some of which (such as steel) are limited in supply and some which (such as leather) are renewable, they may instead be considered Veblen goods.
However, simply because the market produces certain goods sub-optimally does not necessarily mean that government intervention is warranted. For one thing, government spending is administered by players who might be equally motivated by positional goals. Furthermore, such government actions can potentially impede improvements in living standards and innovation. Technological advance itself is possible in part because wealthy individuals are willing to purchase new and untested goods. There is a certain experimentation and risk that accompany luxury goods, and if they are found to be useful they may eventually be mass produced and made affordable to the common person: one era's luxuries are another's commonplace goods. In short, the negative positional externality is often compensated by the public good
s of infant industry effects and research and development
. Ultimately, any such positive effects of these goods would need to weighed against the negative positional effects to determine the magnitude of any consumption taxes placed on them.
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...
, positional goods are products and services whose value is mostly (if not exclusively) a function of their ranking in desirability by others, in comparison to substitutes. The extent to which a good's value depends on such a ranking is referred to as its positionality. The term was coined by Fred Hirsch in 1976.
Positional goods often earn economic rent
Economic rent
Economic rent is typically defined by economists as payment for goods and services beyond the amount needed to bring the required factors of production into a production process and sustain supply. A recipient of economic rent is a rentier....
s or quasi-rent
Quasi-rent
Quasi-rent is an analytical term in economics, for the income earned, in excess of post-investment opportunity cost, by a sunk cost investment...
s. Examples of positional goods include high social status
Social status
In sociology or anthropology, social status is the honor or prestige attached to one's position in society . It may also refer to a rank or position that one holds in a group, for example son or daughter, playmate, pupil, etc....
, exclusive real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
, a spot in the freshman class of a prestigious university, a reservation at the "hottest" new restaurant, and fame. The measure of satisfaction derived from a positional good depends on how much one has in relation to everyone else.
Competitions for positional goods are zero-sum games because such goods are inherently scarce, at least in the short run. Attempts to acquire them can only benefit one player at the expense of others. By definition, every person cannot be the most popular, cool, or elite, in the same way that every person cannot be a star athlete – all of those terms imply a separation or superiority over other people.
Land (in the economic sense)
Land (economics)
In economics, land comprises all naturally occurring resources whose supply is inherently fixed. Examples are any and all particular geographical locations, mineral deposits, and even geostationary orbit locations and portions of the electromagnetic spectrum. Natural resources are fundamental to...
is similar to positional goods in that it cannot be created, and land rent
Law of Rent
The law of rent was formulated by David Ricardo around 1809, and this is the origin of the term Ricardian rent. Ricardo's formulation of the law was the first clear exposition of the source and magnitude of land rents, and is among the most important and firmly established principles of economics. ...
arises largely because of a parcel's ranking in desirability against other plots. However, land is valued for its absolute contribution to productivity, which does not derive from its relative ranking. Thus, some economists (such as Hirsch) include 'land' in positional goods, while others (such as Robert H. Frank
Robert H. Frank
Robert H. Frank is the Henrietta Johnson Louis Professor of Management and a Professor of Economics at the Samuel Curtis Johnson Graduate School of Management at Cornell University. He contributes to the "Economic View" column, which appears every fifth Sunday in The New York Times.-Career:Frank...
) only include goods which are valued specifically because of their relative quality.
In general, positional goods cannot be created, only redistributed, while material goods can be created with time and effort. However, most goods have both a positional and a material component. Fast cars may be considered to be inherently scarce because one's perception of a car's speed depends on its relation to other vehicles, but there is still an absolute value attached to satisfaction gained from the speed at which a car can travel; it can be considered as having a positional aspect in that only some cars can be the fastest. Because a car is a complex product made of many other materials, some of which (such as steel) are limited in supply and some which (such as leather) are renewable, they may instead be considered Veblen goods.
Positional externalities
Some economists, such as Robert Frank, argue that positional goods create externalities, or a so-called "arms race" for goods that might boost one's social status relative to others. This phenomenon is clearly wasteful; thus, it is argued, government can improve social welfare by imposing high consumption taxes on certain luxury goods to correct for this externality and mitigate the social waste.However, simply because the market produces certain goods sub-optimally does not necessarily mean that government intervention is warranted. For one thing, government spending is administered by players who might be equally motivated by positional goals. Furthermore, such government actions can potentially impede improvements in living standards and innovation. Technological advance itself is possible in part because wealthy individuals are willing to purchase new and untested goods. There is a certain experimentation and risk that accompany luxury goods, and if they are found to be useful they may eventually be mass produced and made affordable to the common person: one era's luxuries are another's commonplace goods. In short, the negative positional externality is often compensated by the public good
Public good
In economics, a public good is a good that is non-rival and non-excludable. Non-rivalry means that consumption of the good by one individual does not reduce availability of the good for consumption by others; and non-excludability means that no one can be effectively excluded from using the good...
s of infant industry effects and research and development
Research and development
The phrase research and development , according to the Organization for Economic Co-operation and Development, refers to "creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of...
. Ultimately, any such positive effects of these goods would need to weighed against the negative positional effects to determine the magnitude of any consumption taxes placed on them.
See also
- Conspicuous consumptionConspicuous consumptionConspicuous consumption is spending on goods and services acquired mainly for the purpose of displaying income or wealth. In the mind of a conspicuous consumer, such display serves as a means of attaining or maintaining social status....
- Expenditure cascadesExpenditure cascadesExpenditure cascades are changes in purchasing and consumption behaviour which ripple through the levels of income in response to changes in income inequality.-Example:...
- Veblen good
- Status symbolStatus symbolA status symbol is a perceived visible, external denotation of one's social position and perceived indicator of economic or social status. Many luxury goods are often considered status symbols...