original papers : Investment and concern for relative position
AbstractEconomists typically analyze individuals' market behavior in isolation from their nonmarket decisions. While this research strategy has generally been successful, it can lead to systematic errors when agents' nonmarket behavior affects their market choices. In this paper we analyze how individuals' investment behavior changes as a result of nonmarket behavior. Specifically, we analyze a model in which individuals must decide how to allocate their initial endowment between two random investments, where the returns are perfectly correlated across individuals for the first investment but independent across individuals for the second. We consider an environment in which men and women match, with wealthier individuals more successful in matching. We show how individuals' concern about relative wealth can affect their investment decisions, and we provide conditions under which individuals bias their investments either toward or away from the investment with correlated returns. A modification of the model is used to explain why agents' investments might exhibit a home country bias.
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Bibliographic InfoArticle provided by Springer in its journal Review of Economic Design.
Volume (Year): 6 (2001)
Issue (Month): 2 ()
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Web page: http://link.springer.de/link/service/journals/10058/index.htm
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- DeMarzo, Peter & Kaniel, Ron & Kremer, Ilan, 2007. "Technological innovation and real investment booms and busts," Journal of Financial Economics, Elsevier, vol. 85(3), pages 735-754, September.
- Ostrovsky, Michael & Schwarz, Michael, 2007.
"Information Disclosure and Unraveling in Matching Markets,"
1965, Stanford University, Graduate School of Business.
- Michael Ostrovsky & Michael Schwarz, 2010. "Information Disclosure and Unraveling in Matching Markets," American Economic Journal: Microeconomics, American Economic Association, vol. 2(2), pages 34-63, May.
- Michael Ostrovsky & Michael Schwarz, 2008. "Information Disclosure and Unraveling in Matching Markets," NBER Working Papers 13766, National Bureau of Economic Research, Inc.
- Lucas Navarro, 2010.
"Efficiency of Two Sided Investments in an Equilibrium Unemployment Framework,"
ILADES-Georgetown University Working Papers
inv260, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
- Navarro, Lucas, 2011. "Efficiency of two sided investments in an equilibrium unemployment framework," Economic Modelling, Elsevier, vol. 28(3), pages 1090-1098, May.
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