About 64.2 million American households keep pets, at a yearly cost of about $34.4 billion, according to the American Pet Products Manufacturers Association. That amounts to about $500 per family per year, and that figure is not counting pet-themed greeting cards and other ancillary pet-related products.
I suspect that the demand curve for pets is, per family, not smooth. That is, the last pet yielded immense consumer surplus, yet the family doesn’t want to buy another pet, or even rent a pet for a week each year.
The number of pets has been rising, so by how much are market prices underreflecting the implied corresponding rise in living standards?
If people are investing more and more in "identity goods," perhaps those goods don’t have smooth demand curves either. Endowment effects are becoming stronger, not weaker. The very poor, for instance, can’t afford such extreme attachments to assets they might need to sell, or in the case of pets, convert to food.
How strong must this effect — the rising relative importance of endowment effects — be to generate an extra 1% a year boost in living standards?
I very much enjoyed the new book Pets in America, by Katherine C. Grier.