We study a variant of the conventional keeping-up-with-the-Joneses setup in which heterogeneous-ability agents care both about consumption and leisure and receive an utility premium if their consumption exceeds that of the Joneses'. Unlike the conventional setup in which all agents are assumed to want to participate in the rat race of staying ahead of the Joneses, our formulation explicitly permits the option to drop out. Mean-preserving changes in the spread of the underlying ability distribution, via its effect on the economy-wide composition of rat-race participants and drop-outs, have important consequences for induced distributions of leisure and income, consequences that are unobtainable using conventional keeping-up preferences.
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Publisher Info
Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number
12862.
Length: 40 pages Date of creation: 10 Jan 2008 Date of revision: Publication status: Forthcoming in Economic Theory Handle: RePEc:isu:genres:12862
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