Status, Inequality and Growth
AbstractIn this paper, we investigate whether, because of differing social organisation, the effect of greater equality may have opposing effects on economic growth in different societies. We investigate a simple endogenous growth model where agents care about their status. This is determined by their ordinal rank in the distribution of consumption. In such a situation, each individual’s problem becomes strategic as her utility will depend on the consumption choices of others, so that the equilibrium consumption and investment choices depend on the distribution of income. In this model, if individuals are concerned with their status when young, greater equality leads to more intense competition for status and thus higher levels of conspicuous consumption for a large mass of individuals, with a possibility of lower investment, and thus lower growth. If individuals are concerned with their status when old, the results are reversed.
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Bibliographic InfoPaper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 123.
Date of creation: Sep 2004
Date of revision:
Status; relative standing; income inequality; growth; consumption externalities.;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D62 - Microeconomics - - Welfare Economics - - - Externalities
- D90 - Microeconomics - - Intertemporal Choice - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-09-30 (All new papers)
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