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Envy and Inequality

  • Francisco Alvarez-Cuadrado
  • Ngo Van Long

We present an overlapping generations economy populated by heterogeneous agents who care about their consumption relative to others and the bequest they leave to their offspring. In the presence of positional concerns individual saving and bequest rates vary across the income distribution. This dispersion in the rates of asset accumulation is the main channel for envy to impact the degree of intra-generational wealth inequality and its inter-generational transmission. Our results suggest that concerns for relative consumption might be an important explanatory factor for the surprisingly low levels of assets held by low-income households and the high concentration of bequests in the upper tail of the wealth distribution.

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File URL: http://hdl.handle.net/10.1111/j.1467-9442.2012.01714.x
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Article provided by Wiley Blackwell in its journal Scandinavian Journal of Economics.

Volume (Year): 114 (2012)
Issue (Month): 3 (09)
Pages: 949-973

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Handle: RePEc:bla:scandj:v:114:y:2012:i:3:p:949-973
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