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Incorporating concern for relative wealth into economic models

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Author Info
Harold L. Cole
George J. Mailath
Andrew Postlewaite

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Abstract

This article develops a simple model that captures a concern for relative standing, or status. This concern is instrumental, in the sense that individuals do not get utility directly from their relative standing, but, rather, the concern is induced because their relative standing affects their consumption of standard commodities. The article investigates the consequences of a concern for relative wealth in models in which individuals are making labor/leisure decisions. The analysis shows how individuals' decisions are affected by the aggregate income distribution and how the concern for relative wealth can generate behavior that can be interpreted as conspicuous consumption when wealth is not directly observable.

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Publisher Info
Article provided by Federal Reserve Bank of Minneapolis in its journal Quarterly Review.

Volume (Year): (1995)
Issue (Month): Sum ()
Pages: 12-21
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Handle: RePEc:fip:fedmqr:y:1995:i:sum:p:12-21:n:v.19no.3

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Related research
Keywords: Consumption (Economics) ; Wealth;

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Abel, A.B., 1990. "Asset Prices Under Habit Formation And Catching Up With The Joneses," Weiss Center Working Papers 1-90, Wharton School - Weiss Center for International Financial Research.
    Other versions:
  2. Robson, Arthur J, 1992. "Status, the Distribution of Wealth, Private and Social Attitudes to Risk," Econometrica, Econometric Society, vol. 60(4), pages 837-57, July. [Downloadable!] (restricted)
  3. Mailath, George J, 1987. "Incentive Compatibility in Signaling Games with a Continuum of Types," Econometrica, Econometric Society, vol. 55(6), pages 1349-65, November. [Downloadable!] (restricted)
  4. David Neumark & Andrew Postlewaite, 1995. "Relative Income Concerns and the Rise in Married Women's Employment," NBER Working Papers 5044, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ed Hopkins, 2006. "Job Market Signalling of Relative Position, or Becker Married to Spence," Levine's Bibliography 321307000000000553, UCLA Department of Economics. [Downloadable!]
    Other versions:
  2. Carol Graham & Stefano Pettinato, 2001. "Happiness, Markets, and Democracy: Latin America in Comparative Perspective," Journal of Happiness Studies, Springer, vol. 2(3), pages 237-268, September. [Downloadable!] (restricted)
  3. Heng-fu Zou, 1998. "The spirit of capitalism, social status, money, and accumulation," Journal of Economics, Springer, vol. 68(3), pages 219-233, October. [Downloadable!] (restricted)
  4. Pérez Truglia, Ricardo Nicolás, 2007. "Can a rise in income inequality improve welfare?," MPRA Paper 4700, University Library of Munich, Germany, revised 22 Dec 2007. [Downloadable!]
  5. Samuel Bowles & Yongjin Park, 2004. "Emulation, Inequality, and Work Hours: Was Thorsten Veblen Right?," Working Papers 2004-14, University of Massachusetts Amherst, Department of Economics. [Downloadable!]
  6. Ed Hopkins & Tatiana Kornienko, 2006. "Which Inequality? The Inequality of Resources Versus the Inequality of Rewards," Levine's Bibliography 784828000000000621, UCLA Department of Economics. [Downloadable!]
  7. Harold L. Cole & George J. Mailath & Andrew Postlewaite, 1996. "Class systems and the enforcement of social norms," Staff Report 213, Federal Reserve Bank of Minneapolis. [Downloadable!]
    Other versions:
  8. Andrew Postlewaite, . ""The Social Basis of Interdependent Preferences''," CARESS Working Papres 97-14, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences. [Downloadable!]
    Other versions:
  9. Antonio Falato, 2003. "Happiness Maintenance and Asset Prices," Finance 0310003, EconWPA. [Downloadable!]
  10. Ed Hopkins & Tatiana Kornienko, 2008. "Which Inequality? The Inequality of Endowments Versus the Inequality of Rewards," ESE Discussion Papers 185, Edinburgh School of Economics, University of Edinburgh. [Downloadable!]
  11. Pradeep Dubey & John Geanakoplos, 2009. "Grading Exams: 100, 99, 98,...or A, B, C?," Cowles Foundation Discussion Papers 1710, Cowles Foundation, Yale University. [Downloadable!]
  12. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2008. "Social Decision Theory: Choosing within and between Groups," Carlo Alberto Notebooks 71, Collegio Carlo Alberto. [Downloadable!]
  13. Ricardo M. Sousa, 2007. "Wealth Shocks and Risk Aversion," NIPE Working Papers 28/2007, NIPE - Universidade do Minho. [Downloadable!]
  14. Engseld, Peter, 2003. "Coordination through Status," Working Papers 2003:11, Lund University, Department of Economics.
  15. Zenginobuz, Unal, 1996. "Concern for relative position, rank-order contests, and contributions to public goods," MPRA Paper 388, University Library of Munich, Germany. [Downloadable!]
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