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Choosing to keep up with the Joneses

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  • Richard Barnett
  • Joydeep Bhattacharya
  • Helle Bunzel

    ()
    (School of Economics and Management, University of Aarhus, Denmark)

Abstract

Does a rise in income inequality induce people to work harder to stay in the rat race (“keep up with the Joneses”) or to simply drop out? We investigate this issue in a simple new framework in which heterogeneous ability agents get extra utility if their consumption keeps up with the economy’s average. The novelty is that agents are allowed to choose whether they want to stay in or drop out of the rat race. We show that sufficiently high ability agents choose to keep up with the Joneses and they enjoy higher consumption but lower leisure than those who don’t. When income inequality rises in a mean-preserving manner, average leisure in the economy may fall. Our analysis touches on the question, why are Americans working so much compared to the Europeans? We posit that higher income inequality in the US, by inducing more people to join the rat race there, may be partly responsible for the transatlantic leisure divide.

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Bibliographic Info

Paper provided by School of Economics and Management, University of Aarhus in its series Economics Working Papers with number 2008-01.

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Length: 25
Date of creation: 10 Jan 2008
Date of revision:
Handle: RePEc:aah:aarhec:2008-01

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Web page: http://www.econ.au.dk/afn/

Related research

Keywords: keeping up with the Joneses; consumption externalities; leisure;

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References

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  1. Erzo F.P. Luttmer, 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," NBER Working Papers 10667, National Bureau of Economic Research, Inc.
  2. 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.
  3. Samuel Bowles & Yongjin Park, 2003. "Emulation, Inequality, and Work Hours: Was Thorsten Veblen Right," Department of Economics University of Siena 409, Department of Economics, University of Siena.
  4. Linda A. Bell & Richard B. Freeman, 2000. "The Incentive for Working Hard: Explaining Hours Worked Differences in the U.S. and Germany," NBER Working Papers 8051, National Bureau of Economic Research, Inc.
  5. Gali, J., 1992. "Keeping Up with the Joneses: Consumption Externalities, Portfolio Choice and Asset Prices," Papers 92-22, Columbia - Graduate School of Business.
  6. Edward C. Prescott, 2004. "Why do Americans Work so Much More than Europeans?," NBER Working Papers 10316, National Bureau of Economic Research, Inc.
  7. Armin Falk & Markus Knell, 2004. "Choosing the Joneses: Endogenous Goals and Reference Standards," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 417-435, October.
  8. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, vol. 75(1), pages 101-16, March.
  9. E. Glaeser & B. Sacerdote & Jose A. Scheinkman, 2003. "The Social Multiplier," Levine's Working Paper Archive 506439000000000130, David K. Levine.
  10. Harald Uhlig & Lars Ljungqvist, 2000. "Tax Policy and Aggregate Demand Management under Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 90(3), pages 356-366, June.
  11. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, vol. 93(1), pages 423-428, March.
  12. Jaime Alonso-Carrera & Jordi Caball?Author-Email: jordi.caballe@uab.es & Xavier Raurich, . "Growth, Habit Formation, and Catching-up\ with the Joneses," UFAE and IAE Working Papers 497.01, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  13. Ed Hopkins & Tatiana Kornienko, 2004. "Running to Keep in the Same Place: Consumer Choice as a Game of Status," ESE Discussion Papers 92, Edinburgh School of Economics, University of Edinburgh.
  14. Landers, Renee M & Rebitzer, James B & Taylor, Lowell J, 1996. "Rat Race Redux: Adverse Selection in the Determination of Work Hours in Law Firms," American Economic Review, American Economic Association, vol. 86(3), pages 329-48, June.
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Cited by:
  1. Yutaro Hatta, 2013. "Wealth Distribution Dynamics with Status Preference: asymmetric motivations for status," Discussion Papers in Economics and Business 13-08, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).

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