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Status and Poverty

Author

Listed:
  • Omer Moav
  • Zvika Neeman

Abstract

We present a model in which individuals' preferences are defined over their consumption, transfers to offspring, and social status associated with income. We show that a separating equilibrium exists where individuals' expenditure on conspicuous consumption is a signal for their unobserved income. In this equilibrium, poor families that climb up the social ladder by the accumulation of wealth engage in conspicuous consumption that prevents them from escaping poverty. Our model may explain why the poor make some choices that do not appear to help them escape poverty. (JEL: D91, O11, O12, O15) (c) 2010 by the European Economic Association.

Suggested Citation

  • Omer Moav & Zvika Neeman, 2010. "Status and Poverty," Journal of the European Economic Association, MIT Press, vol. 8(2-3), pages 413-420, 04-05.
  • Handle: RePEc:tpr:jeurec:v:8:y:2010:i:2-3:p:413-420
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    References listed on IDEAS

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    1. Dasgupta, Partha & Ray, Debraj, 1986. "Inequality as a Determinant of Malnutrition and Unemployment: Theory," Economic Journal, Royal Economic Society, vol. 96(384), pages 1011-1034, December.
    2. Oded Galor & Joseph Zeira, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Oxford University Press, vol. 60(1), pages 35-52.
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    Cited by:

    1. Alvarez-Cuadrado, Francisco & Van Long, Ngo, 2011. "The relative income hypothesis," Journal of Economic Dynamics and Control, Elsevier, vol. 35(9), pages 1489-1501, September.
    2. 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.
    3. Jinkins, David, 2016. "Conspicuous consumption in the United States and China," Journal of Economic Behavior & Organization, Elsevier, vol. 127(C), pages 115-132.
    4. Omer Moav and & Zvika Neeman, 2012. "Saving Rates and Poverty: The Role of Conspicuous Consumption and Human Capital," Economic Journal, Royal Economic Society, vol. 122(563), pages 933-956, September.
    5. Holger Strulik, 2015. "How Status Concerns Can Make Us Rich and Happy," Economica, London School of Economics and Political Science, vol. 82, pages 1217-1240, December.
    6. Chivers, David, 2017. "Success, survive or escape? Aspirations and poverty traps," Journal of Economic Behavior & Organization, Elsevier, vol. 143(C), pages 116-132.
    7. Marjit, Sugata & Roy, Ranjan, 2010. "Conflicting Measures of Poverty and Inadequate Saving by the Poor – The Role of Status Driven Utility Function," MPRA Paper 27472, University Library of Munich, Germany.
    8. Marjit, Sugata & Roychowdhury, Punarjit, 2011. "Status, Poverty and Trade," MPRA Paper 33730, University Library of Munich, Germany.
    9. König, Tobias & Lausen, Tobias, 2016. "Relative consumption preferences and public provision of private goods," Discussion Papers, Research Unit: Market Behavior SP II 2016-213, WZB Berlin Social Science Center.
    10. Danzer, Alexander M. & Dietz, Barbara & Gatskova, Ksenia & Schmillen, Achim, 2014. "Showing off to the new neighbors? Income, socioeconomic status and consumption patterns of internal migrants," Journal of Comparative Economics, Elsevier, vol. 42(1), pages 230-245.
    11. Friehe, Tim & Mechtel, Mario, 2014. "Conspicuous consumption and political regimes: Evidence from East and West Germany," European Economic Review, Elsevier, vol. 67(C), pages 62-81.
    12. Marjit, Sugata, 2012. "Conflicting Measures of Poverty and Inadequate Saving by the Poor," WIDER Working Paper Series 058, World Institute for Development Economic Research (UNU-WIDER).
    13. Tim Friehe & Mario Mechtel, 2012. "Conspicuous Consumption and Communism: Evidence from East and West Germany," CESifo Working Paper Series 3922, CESifo.
    14. Sugata Marjit, 2012. "Conflicting Measures of Poverty and Inadequate Saving by the Poor," WIDER Working Paper Series wp-2012-058, World Institute for Development Economic Research (UNU-WIDER).
    15. Tim Friehe & Mario Mechtel, 2017. "Gambling to leapfrog in status?," Review of Economics of the Household, Springer, vol. 15(4), pages 1291-1319, December.
    16. Kevin B. Grier & Daniel L. Hicks & Weici Yuan, 2016. "Marriage Market Matching And Conspicuous Consumption In China," Economic Inquiry, Western Economic Association International, vol. 54(2), pages 1251-1262, April.
    17. Francisco Alvarez‐Cuadrado & Mayssun El‐Attar Vilalta, 2018. "Income Inequality and Saving," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 80(6), pages 1029-1061, December.
    18. Chi, Feng & Yang, Nathan, 2010. "Wealth and Status: Analyzing the Perceived Attractiveness of 2010 FIFA World Cup Players," MPRA Paper 23881, University Library of Munich, Germany.
    19. Vincenzo Lombardo, 2012. "Social inclusion and the emergence of development traps," Discussion Papers 13_2012, CRISEI, University of Naples "Parthenope", Italy.
    20. repec:unu:wpaper:wp2012-58 is not listed on IDEAS
    21. Vincenzo Lombardo, 2012. "Relative consumption and poverty traps," Discussion Papers 11_2012, CRISEI, University of Naples "Parthenope", Italy.
    22. Canidio, Andrea, 2015. "Focusing effect and the poverty trap," European Economic Review, Elsevier, vol. 76(C), pages 222-238.

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    More about this item

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration

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