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Choosing to keep up with the Joneses and income inequality

Author

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  • Richard Barnett

    ()

  • Joydeep Bhattacharya

    ()

  • Helle Bunzel

    ()

Abstract

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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Richard Barnett & Joydeep Bhattacharya & Helle Bunzel, 2010. "Choosing to keep up with the Joneses and income inequality," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 45(3), pages 469-496, December.
  • Handle: RePEc:spr:joecth:v:45:y:2010:i:3:p:469-496
    DOI: 10.1007/s00199-009-0494-5
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    References listed on IDEAS

    as
    1. Abel, Andrew B, 1990. "Asset Prices under Habit Formation and Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 80(2), pages 38-42, May.
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    Citations

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    Cited by:

    1. Boris Gershman, 2014. "The two sides of envy," Journal of Economic Growth, Springer, vol. 19(4), pages 407-438, December.
    2. Chang, Ming-Jen & Chang, Juin-Jen & Shieh, Jhy-Yuan, 2014. "Keeping up with the Joneses and exchange rate volatility in a Redux model," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 569-584.
    3. Barnett, Richard & Bhattacharya, Joydeep & Bunzel, Helle, 2016. "The Fight-or-Flight Response to the Joneses," School of Economics Working Paper Series 2016-12, LeBow College of Business, Drexel University.
    4. Allen, Jeffrey & Chakraborty, Shankha, 2018. "Aspirations, health and the cost of inequality," Journal of Economic Dynamics and Control, Elsevier, vol. 86(C), pages 144-164.
    5. Michel Denuit & Rachel Huang & Larry Tzeng, 2014. "Bivariate almost stochastic dominance," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(2), pages 377-405, October.
    6. repec:bla:rdevec:v:21:y:2017:i:3:p:713-730 is not listed on IDEAS
    7. Barnett, Richard & Bhattacharya, Joydeep & Bunzel, Helle, 2016. "Do the Joneses make you financially vulnerable?," School of Economics Working Paper Series 2016-11, LeBow College of Business, Drexel University.

    More about this item

    Keywords

    Leisure distribution; Rat race; Keeping up with the Joneses; Income inequality; J 22; E2; D1;

    JEL classification:

    • 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

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