A Note on Leibenstein's Veblen Effect

Abstract

In 1950, Harvey Leibenstein published his well-known article, "Bandwagon, Snob, and Veblen Effects in the Theory of Consumer Demand," in The Quarterly Journal of Economics. In this influential article, Leibenstein defined the "Veblen Effect" and in so doing defined Veblen's contribution to mainstream demand theory. It is curious, however, that an article purporting to define a Veblen effect is completely lacking in any footnotes or specific references to the writings of Thorstein Veblen. Indeed, a careful reading of Leibenstein's article suggests that he did not fully understand the concept of conspicuous consumption. For Leibenstein, the idea of conspicuous consumption is captured by his Veblen effect: "By the Veblen effect we refer to the phenomenon of conspicious consumption; to the extent to which the demand for a consumer's good is increased because it bears a higher rather than a lower price." [Leibenstein, p. 189] Thus, conspicuous consumption has only a price dimension, and can lead to a demand curve having a positive slope.