Editing Externality (section)

===Positional===
The sociological basis of Positional externalities is rooted in the theories of [[conspicuous consumption]] and [[Positional good|positional goods]].<ref>{{Cite journal |last1=Alesina |first1=Alberto |last2=Hausmann |first2=Ricardo |last3=Hommes |first3=Rudolf |last4=Stein |first4=Ernesto |date=August 1999 |title=Budget institutions and fiscal performance in Latin America |url=https://linkinghub.elsevier.com/retrieve/pii/S0304387899000127 |journal=Journal of Development Economics |language=en |volume=59 |issue=2 |pages=253–273 |doi=10.1016/S0304-3878(99)00012-7|hdl=10419/87844 |hdl-access=free }}</ref>

[[File:2012 Derby hats 4.jpg|thumb|right|200px|At the [[Kentucky Derby]], a major horse racing competition, some audience members wear expensive hats to display their wealth and status.]]
Conspicuous consumption (originally articulated by [[Thorstein Veblen|Veblen]], 1899) refers to the consumption of goods or services primarily for the purpose of displaying social status or wealth. In simpler terms, individuals engange in conspicuous consumption to signal their economic standing or to gain social recognition.<ref>{{Cite book |last=Veblen |first=Thorstein |title=The theory of the leisure class |date=1998 |publisher=Prometheus Books |isbn=978-1-57392-219-7 |series=Great minds series |location=New York}}</ref> Positional goods (introduced by [[Fred Hirsch (economist)|Hirsch]], 1977) are such goods, whose value is heavily contingent upon how they compare to similar goods owned by others. Their desirability is or derived utility is intrinsically tied to their relative scarcity or exclusivity within a particular social context.<ref>{{Cite book |last=Hirsch |first=Fred |title=Social limits to growth |date=1978 |publisher=Routledge & Kegan Paul |isbn=978-0-7100-8610-5 |edition=Repr |series=A twentieth century fund study |location=London}}</ref>

The economic concept of Positional externalities originates from [[James Duesenberry|Duesenberry]]'s [[Relative income hypothesis|Relative Income Hypothesis]]. This hypothesis challenges the conventional microeconomic model, as outlined by the Common Pool Resource (CPR) mechanism, which typically assumes that an individual's utility derived from consuming a particular good or service remains unaffected by other's consumption choices. Instead, Duesenberry posits that individuals gauge the utility of their consumption based on a comparison with other consumption bundles, thus introducing the notion of relative income into economic analysis. Consequently, the consumption of positional goods becomes highly sought after, as it directly impacts one's perceived status relative to others in their social circle.<ref>{{Cite book |last=Duesenberry |first=J.S. |title=Income, saving, and the theory of consumer behavior |publisher=Oxford University Press |year=1967 |location=New York}}</ref>

Example: consider a scenario where individuals within a social group vie for the latest luxury cars. As one member acquires a top-of-the-line vehicle, others may feel compelled to upgrade their own cars to preserve their status within the group. This cycle of competitive consumption can result in inefficient allocation of resources and exacerbate income inequality within society.

The consumption of positional goods engenders negative externalities, wherein the acquisition of such goods by one individual diminishes the utility or value of similar goods held by others within the same reference group. This positional externality, can lead to a cascade of overconsumption, as individuals strive to maintain or improve their relative position through excessive spending.

Positional externalities are related, but not similar to Percuniary externalities.