Using conspicuous consumption as a signal for ability produces a social inefficiency because

Question

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When conspicuous consumption is used as a signal for ability, a positional arms race ensues, which means individuals try to outdo each other in terms of the amount they spend on conspicuous consumption. Since this spending does not necessarily reflect their actual ability or productivity, it leads to a social inefficiency. This is because these resources could have been used in other productive ways, such as investments, R&D, or personal development, instead of being used to display status.

Using Conspicuous Consumption as a Signal for Ability Produces a Social