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The quest for status and R&D-based growth

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  • Hof, Franz X.
  • Prettner, Klaus

Abstract

We analyze the impact of status preferences on technological progress and long-run economic growth. For this purpose, we extend the standard relative wealth approach by allowing the two components of the representative household's wealth, physical capital and shares, to differ with respect to their status relevance. Relative wealth preferences imply that the effective rate of return of saving in the form of a particular asset is the sum of its market rate of return and its status-related extra return. It is shown that the status relevance of shares is of crucial importance: First, an increase in the intensity of the quest for status raises the steady-state economic growth rate only if the status-related extra return of shares is strictly positive. Second, for any given degree of status consciousness, the long-run economic growth rate depends positively on the relative status relevance of shares. Third, while in the standard model the decentralized long-run economic growth rate is less than its socially optimal counterpart, the wealth externalities in our model counterbalance this distortion to some extent provided that shares matter for status.

Suggested Citation

  • Hof, Franz X. & Prettner, Klaus, 2016. "The quest for status and R&D-based growth," ECON WPS - Working Papers in Economic Theory and Policy 01/2016, TU Wien, Institute of Statistics and Mathematical Methods in Economics, Economics Research Unit.
  • Handle: RePEc:zbw:tuweco:012016
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    Cited by:

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    4. Hof, Franz X. & Prettner, Klaus, 2019. "Relative consumption, relative wealth, and long-run growth: When and why is the standard analysis prone to erroneous conclusions?," Hohenheim Discussion Papers in Business, Economics and Social Sciences 12-2019, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    5. Belyakov, A.O. & Kurbatskiy, A.N. & Prettner, K., 2021. "The growth effects of anticipated versus unanticipated population aging," Journal of Mathematical Economics, Elsevier, vol. 94(C).

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    More about this item

    Keywords

    status concerns; relative wealth; technological progress; long-run economic growth; social optimality;
    All these keywords.

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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