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Choosing to keep up with the Joneses and income inequality

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Author Info

  • Richard Barnett

    ()

  • Joydeep Bhattacharya

    ()

  • Helle Bunzel

    ()

Abstract

We 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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File URL: http://hdl.handle.net/10.1007/s00199-009-0494-5
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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 45 (2010)
Issue (Month): 3 (December)
Pages: 469-496

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Handle: RePEc:spr:joecth:v:45:y:2010:i:3:p:469-496

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Web page: http://link.springer.de/link/service/journals/00199/index.htm

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Related research

Keywords: Leisure distribution; Rat race; Keeping up with the Joneses; Income inequality; J 22; E2; D1;

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References

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  1. A. Abel, 2010. "Asset prices under habit formation and catching up with the Jones," Levine's Working Paper Archive 1395, David K. Levine.
  2. Lisa Farrell & Roger Hartley, . "Can Expected Utility Theory Explain Gambling?," Discussion Papers in Public Sector Economics 00/8, Department of Economics, University of Leicester.
  3. Cecilia García-Peñalosa & Stephen Turnovsky, 2006. "Growth and income inequality: a canonical model," Economic Theory, Springer, vol. 28(1), pages 25-49, 05.
  4. Oded Galor & Joseph Zeira, 2013. "Income Distribution and Macroeconomics," Working Papers 2013-12, Brown University, Department of Economics.
  5. Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1047-64, October.
  6. Abhijit Banerjee & Andrew F. Newman, 1989. "Risk-Bearing and the Theory of Income Distribution," Discussion Papers 877, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. Gary S. Becker & Kevin M. Murphy & Ivan Werning, 2005. "The Equilibrium Distribution of Income and the Market for Status," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 282-310, April.
  8. Galor, Oded, 1996. "Convergence? Inferences from Theoretical Models," Economic Journal, Royal Economic Society, vol. 106(437), pages 1056-69, July.
  9. Edward C. Prescott, 2003. "Why do Americans work so much more than Europeans?," Staff Report 321, Federal Reserve Bank of Minneapolis.
  10. Koichi Kawamoto, 2009. "Status-seeking behavior, the evolution of income inequality, and growth," Economic Theory, Springer, vol. 39(2), pages 269-289, May.
  11. Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56, pages 279.
  12. Ngo Van Long & Koji Shimomura, 2002. "Relative Wealth, Status Seeking, and Catching Up," CIRANO Working Papers 2002s-09, CIRANO.
  13. Drakopoulos, Stavros A., 2005. "The paradox of Happiness: towards an alternative explanation," MPRA Paper 6870, University Library of Munich, Germany.
  14. Cecilia García-Peñalosa & Stephen Turnovsky, 2008. "Consumption externalities: a representative consumer model when agents are heterogeneous," Economic Theory, Springer, vol. 37(3), pages 439-467, December.
  15. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, vol. 93(1), pages 423-428, March.
  16. Clark, Andrew E. & Oswald, Andrew J., 1998. "Comparison-concave utility and following behaviour in social and economic settings," Journal of Public Economics, Elsevier, vol. 70(1), pages 133-155, October.
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Cited by:
  1. Chang, Ming-Jen & Chang, Juin-Jen & Shieh, Jhy-Yuan, 2014. "Keeping up with the Joneses and exchange rate volatility in a Redux model," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 569-584.
  2. Boris Gershman, 2012. "The Two Sides of Envy," Working Papers 2012-19, American University, Department of Economics.

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