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Methods of Comparison in Games of Status

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  • Ed Hopkins

    ()

  • Tatiana Kornienko

Abstract

This paper considers the effects of changes in the income distribution in an economy where agents’ utility depends both on consumption and on their rank in the distribution of consumption of a positional good. We introduce a new methodology to compare the behavior of agents that occupy the same rank in the two different income distributions but typically have different levels of incomes, and analyze equilibrium choices and welfare of every member of the society for continuous distributions with arbitrary, even disjoint, ranges. If an income transformation raises incomes at the lower end of the income distribution, the poor will typically be better off. But because such an income transformation also increases the degree of social competition, the middle class will typically be worse off - even if they have higher incomes as well. An increase in incomes can make all better off, but only if it is accompanied by an increase in income dispersion. Our new techniques highlight the importance of density of social space as we demonstrate that one can have an increase both in income and relative position but still be worse off.

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Bibliographic Info

Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 138.

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Length: 29
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:edn:esedps:138

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Related research

Keywords: Status; relative standing; income inequality; conspicuous consumption; consumption externalities; income inequality; social competitiveness; first price auctions; dispersive orderings.;

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References

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  1. Senik, Claudia, 2004. "When information dominates comparison: Learning from Russian subjective panel data," Journal of Public Economics, Elsevier, Elsevier, vol. 88(9-10), pages 2099-2123, August.
  2. Benny Moldovanu & Aner Sela & Xianwen Shi, 2007. "Contests for Status," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 115, pages 338-363.
  3. Wilkinson, Richard G & Pickett, Kate E., 2006. "Income inequality and population health: A review and explanation of the evidence," Social Science & Medicine, Elsevier, Elsevier, vol. 62(7), pages 1768-1784, April.
  4. Clark, Andrew E. & Oswald, Andrew J., 1998. "Comparison-concave utility and following behaviour in social and economic settings," Journal of Public Economics, Elsevier, Elsevier, vol. 70(1), pages 133-155, October.
  5. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, vol. 46(1), pages 95-144, March.
  6. Pradeep Dubey & John Geanakoplos, 2005. "Grading in Games of Status: Marking Exams and Setting Wages," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1544, Cowles Foundation for Research in Economics, Yale University, revised Dec 2005.
  7. Luttmer, Erzo F. P., 2004. "Neighbors as Negatives: Relative Earnings and Well-Being," Working Paper Series rwp04-029, Harvard University, John F. Kennedy School of Government.
  8. Hoppe, Heidrun C. & Moldovanu, Benny & Sela, Aner, 2005. "The Theory of Assortative Matching Based on Costly Signals," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 85, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  9. Brown, Gordon D. A. & Gardner, Jonathan & Oswald, Andrew J. & Qian, Jing, 2005. "Does Wage Rank Affect Employees' Wellbeing?," IZA Discussion Papers 1505, Institute for the Study of Labor (IZA).
  10. Corneo, Giacomo & Jeanne, Olivier, 1997. "On relative wealth effects and the optimality of growth," Economics Letters, Elsevier, Elsevier, vol. 54(1), pages 87-92, January.
  11. Ed Hopkins, 2008. "Inequality, Happiness and Relative Concerns: What Actually is their Relationship?," Levine's Bibliography 122247000000001896, UCLA Department of Economics.
  12. Corneo, Giacomo & Jeanne, Olivier, 1999. "Pecuniary emulation, inequality and growth," European Economic Review, Elsevier, Elsevier, vol. 43(9), pages 1665-1678, October.
  13. Cooper, B. & Garcia-Penalosa, C., 1998. "Status Effects and Neganive Utility Growth," Economics Papers 150, Economics Group, Nuffield College, University of Oxford.
  14. Giacomo Corneo, 2000. "The Efficient Side of Progressive Income Taxation," CESifo Working Paper Series 364, CESifo Group Munich.
  15. Friedman, Daniel & Ostrov, Daniel N., 2008. "Conspicuous consumption dynamics," Games and Economic Behavior, Elsevier, Elsevier, vol. 64(1), pages 121-145, September.
  16. Easterlin, Richard A., 1995. "Will raising the incomes of all increase the happiness of all?," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 27(1), pages 35-47, June.
  17. Hopkins, Ed, 2008. "Inequality, Happiness and Relative Concerns: What Actually is their Relationship?," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2008-01, Scottish Institute for Research in Economics (SIRE).
  18. Ed Hopkins & Tatiana Kornienko, 2008. "Which Inequality? The Inequality of Endowments Versus the Inequality of Rewards," ESE Discussion Papers, Edinburgh School of Economics, University of Edinburgh 185, Edinburgh School of Economics, University of Edinburgh.
  19. Bruno S. Frey & Alois Stutzer, 2002. "What Can Economists Learn from Happiness Research?," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 402-435, June.
  20. Pradeep Dubey & John Geanakoplos, 2005. "Grading in Games of Status: Marking Exams and Setting Wages," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 1544, Cowles Foundation for Research in Economics, Yale University.
  21. Hopkins, Ed & Kornienko, Tatiana, 2008. "Which Inequality? The Inequality of Endowments Versus the Inequality of Rewards," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2008-13, Scottish Institute for Research in Economics (SIRE).
  22. Eric Maskin & John Riley, 2003. "Uniqueness of Equilibrium in Sealed High-Bid Auctions," Economics Working Papers, Institute for Advanced Study, School of Social Science 0031, Institute for Advanced Study, School of Social Science.
  23. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, American Economic Association, vol. 75(1), pages 101-16, March.
  24. Kohei Kawamura, 2008. "Inequality, Happiness and Relative Concerns: What Actually is their Relationship?," ESE Discussion Papers, Edinburgh School of Economics, University of Edinburgh 182, Edinburgh School of Economics, University of Edinburgh.
  25. Robson, Arthur J, 1992. "Status, the Distribution of Wealth, Private and Social Attitudes to Risk," Econometrica, Econometric Society, Econometric Society, vol. 60(4), pages 837-57, July.
  26. Ed Hopkins & Tatiana Kornienko, 2004. "Running to Keep in the Same Place: Consumer Choice as a Game of Status," American Economic Review, American Economic Association, American Economic Association, vol. 94(4), pages 1085-1107, September.
  27. Cole, Harold L & Mailath, George J & Postlewaite, Andrew, 1992. "Social Norms, Savings Behavior, and Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(6), pages 1092-1125, December.
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