V-177-97 Udo Ebert and Oskar von dem Hagen, Exogenous preferences and endogenous tastes or tastes as an object of preference
A main result of this paper is that many dierent situations of variable tastes have a similar structure. Several so far completely dierent strands of economic literature can be analysed and discussed in the unifying framework presented.
Tastes are dened as orderings of a subspace of a (suitably chosen) commodity space. The analysis focuses on two main aspects of variable tastes: the institutional question of who in uences or determines the individuals' tastes and the technological question concerning the properties of the cost function for taste changes. The allocative ineciency of an economic system with endogenous tastes is demonstrated and Pigouvian-type corrective taxes are brie y discussed.
It is shown that changes in tastes have a direct and an indirect impact on welfare. The latter is due to changes in the equilibrium allocation. The literature on variable tastes often, sometimes mistakenly, ignores the direct eect, while the related theory of externalities focuses on it and disregards the indirect effect which disappears under customary separability assumptions.
JEL Classification: D11, D60
Keywords: variable or endogenous tastes/preferences, commodity space