Choosing to keep up with the Joneses and income inequality
AbstractWe study a variant of the conventional keeping-up-with-the-Joneses setup in which heterogeneous-ability agents care both about consumption and leisure and receive an utility premium if their consumption exceeds that of the Joneses'. Unlike the conventional setup in which all agents are assumed to want to participate in the rat race of staying ahead of the Joneses, our formulation explicitly permits the option to drop out. Mean-preserving changes in the spread of the underlying ability distribution, via its effect on the economy-wide composition of rat-race participants and drop-outs, have important consequences for induced distributions of leisure and income, consequences that are unobtainable using conventional keeping-up preferences.
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Bibliographic InfoArticle provided by Springer in its journal Economic Theory.
Volume (Year): 45 (2010)
Issue (Month): 3 (December)
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Web page: http://link.springer.de/link/service/journals/00199/index.htm
Other versions of this item:
- Barnett, Richard C. & Bhattacharya, Joydeep & Bunzel, Helle, 2008. "Choosing to Keep Up with the Joneses and Income Inequality," Staff General Research Papers 12862, Iowa State University, Department of Economics.
- D1 - Microeconomics - - Household Behavior
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
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