Choosing to Keep Up with the Joneses and Income Inequality
AbstractWe 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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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12862.
Date of creation: 10 Jan 2008
Date of revision:
Publication status: Published in Economic Theory 2010, vol. 45 no. 3, pp. 469-496
Contact details of provider:
Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
Web page: http://www.econ.iastate.edu
More information through EDIRC
keeping up with the Joneses; consumption externalities; leisure; labor supply;
Other versions of this item:
- Richard Barnett & Joydeep Bhattacharya & Helle Bunzel, 2010. "Choosing to keep up with the Joneses and income inequality," Economic Theory, Springer, vol. 45(3), pages 469-496, December.
- D1 - Microeconomics - - Household Behavior
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-01-12 (All new papers)
- NEP-HAP-2008-01-12 (Economics of Happiness)
- NEP-MAC-2008-01-12 (Macroeconomics)
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