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Status and Poverty

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Author Info

  • Omer Moav
  • Zvika Neeman

Abstract

We present a model in which individuals' preferences are defined over their consumption, transfers to offspring, and social status associated with income. We show that a separating equilibrium exists where individuals' expenditure on conspicuous consumption is a signal for their unobserved income. In this equilibrium, poor families that climb up the social ladder by the accumulation of wealth engage in conspicuous consumption that prevents them from escaping poverty. Our model may explain why the poor make some choices that do not appear to help them escape poverty. (JEL: D91, O11, O12, O15) (c) 2010 by the European Economic Association.

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Bibliographic Info

Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 8 (2010)
Issue (Month): 2-3 (04-05)
Pages: 413-420

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Handle: RePEc:tpr:jeurec:v:8:y:2010:i:2-3:p:413-420

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References

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  1. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Wiley Blackwell, vol. 60(1), pages 35-52, January.
  2. Dasgupta, Partha & Ray, Debraj, 1986. "Inequality as a Determinant of Malnutrition and Unemployment: Theory," Economic Journal, Royal Economic Society, vol. 96(384), pages 1011-34, December.
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Citations

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Cited by:
  1. Alvarez-Cuadrado, Francisco & El-Attar, Mayssun, 2012. "Income Inequality and Saving," IZA Discussion Papers 7083, Institute for the Study of Labor (IZA).
  2. Marjit, Sugata & Roychowdhury, Punarjit, 2011. "Status, Poverty and Trade," MPRA Paper 33730, University Library of Munich, Germany.
  3. Marjit, Sugata, 2012. "Conflicting Measures of Poverty and Inadequate Saving by the Poor," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  4. Tim Friehe & Mario Mechtel, 2012. "Conspicuous Consumption and Communism: Evidence from East and West Germany," CESifo Working Paper Series 3922, CESifo Group Munich.
  5. Mario Mechtel & Tim Friehe, 2014. "Gambling to Leapfrog in Status?," IAAEU Discussion Papers 201404, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
  6. Chi, Feng & Yang, Nathan, 2010. "Wealth and Status: Analyzing the Perceived Attractiveness of 2010 FIFA World Cup Players," MPRA Paper 23881, University Library of Munich, Germany.
  7. Danzer, Alexander M. & Dietz, Barbara & Gatskova, Ksenia & Schmillen, Achim, 2013. "Showing Off to the New Neighbors? Income, Socioeconomic Status and Consumption Patterns of Internal Migrants," IZA Discussion Papers 7370, Institute for the Study of Labor (IZA).
  8. Friehe, Tim & Mechtel, Mario, 2014. "Conspicuous consumption and political regimes: Evidence from East and West Germany," European Economic Review, Elsevier, vol. 67(C), pages 62-81.
  9. Francisco Alvarez-Cuadrado & Ngo Van Long, 2008. "The Relative Income Hypothesis," CIRANO Working Papers 2008s-18, CIRANO.
  10. Vincenzo Lombardo, 2012. "Relative consumption and poverty traps," Discussion Papers 11_2012, CRISEI, University of Naples "Parthenope", Italy.
  11. Marjit, Sugata & Roy, Ranjan, 2010. "Conflicting Measures of Poverty and Inadequate Saving by the Poor – The Role of Status Driven Utility Function," MPRA Paper 27472, University Library of Munich, Germany.
  12. Omer Moav and & Zvika Neeman, 2012. "Saving Rates and Poverty: The Role of Conspicuous Consumption and Human Capital," Economic Journal, Royal Economic Society, vol. 122(563), pages 933-956, 09.
  13. Strulik, Holger, 2013. "How status concerns can make us rich and happy," Center for European, Governance and Economic Development Research Discussion Papers 170, University of Goettingen, Department of Economics.
  14. Vincenzo Lombardo, 2012. "Social inclusion and the emergence of development traps," Discussion Papers 13_2012, CRISEI, University of Naples "Parthenope", Italy.

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