This post is not really related to taxes but more a recent observation of mine. I am mum to an 8th month old and observe a lot of things about parents I did not previously notice. This blog follows up on my twitter postings from Christmas Day.
I am in the mighty megapolous of Toronto for Christmas. And I do mean Toronto and not the GTA, an important distinction for those that living in Toronto proper itself. I am visiting my in-laws for Christmas, who I like a great deal, and they live in a very affluent neighbourhood in Toronto. Despite the terrible winter weather, I did get out quite a bit and noticed a big difference between Toronto and Victoria (and not just the weather). In Toronto, parents seemed to unanimously chose urban strollers. You know those four wheel jobbies. I found this odd, given how terrible these types of stroller are on terrain such as ice, snow, slush, and more importantly, pot holes. In Victoria, most parents opt for more versatile three wheel strollers such as the Bob Revolution or City Elite (my stroller of choice because you can run with it). Then I began to look more closely. Most of the strollers I was seeing in Toronto were the exclusive UppaBabby strollers and specifically the model that retails for around $900. That, IMO, is a lot of money to spend on a stroller that can navigate the terrain for 6 months out of the year and that you can’t jog with.
As an economist I then begin to think about what drives these preferences for an UppaBabby stroller. This leads me to two considerations. First, signaling. Parents always want to signal to the world how good of a parent they are, but that information about their parental quality is really only known to the parent. What they want to do is somehow signal that they are great parents. How do you do this without any interaction with people and particularly when you child may be showing to the world that perhaps you are not such a great parent? There are important ways to signal quality. Signalling refers to actions taken by an informed party for the sole purpose of credibly revealing private information. Signaling, to be effective, must be costly. If a signal was free, everyone would use it, and it would convey no information. The signal must also be less costly or more beneficial, to the person with the higher-quality product; otherwise, everyone would have the same incentive to use the signal, and the signal would reveal nothing. Conspicuous consumption is an excellent way to signal “quality”. In the case of strollers, parents who perceive themselves to be good parents are signaling they are great parents by purchasing expensive strollers.
The second consideration is a positional externality. A positional externality generates an “arms race” and over investment. An example is “lawyering up” which is based on the notion that the client with the best lawyer wins, so both parties spend heavily on lawyers. Positional externalities lead to a positional arms race. Social norms can also play a role as positional arms agreements. Keeping up with the Jones’ is a positional externality and purchasing expensive strollers could simply be a manifestation of the competition that manifests itself through conspicuous consumption.
I am sure that the plethora of UppaBabby Strollers in Toronto is likely a combination of both these factors (some will try to tell me these are ideal strollers, but that is only true if you don’t want to be outside during the winter months). This example reminds me of how economics can quickly give me answers to things I see in my daily life. Economics really makes you think about the world you see and to find answers using its greatly powerful tools.