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Status, Inequality and Growth

In this paper, we investigate whether, because of differing social organisation, the effect of greater equality may have opposing effects on economic growth in different societies. We investigate a simple endogenous growth model where agents care about their status. This is determined by their ordinal rank in the distribution of consumption. In such a situation, each individual's problem becomes strategic as her utility will depend on the consumption choices of others, so that the equilibrium consumption and investment choices depend on the distribution of income. In this model, if individuals are concerned with their status when young, greater equality leads to more intense competition for status and thus higher levels of conspicuous consumption for a large mass of individuals, with a possibility of lower investment, and thus lower growth. If individuals are concerned with their status when old, the results are reversed.

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File URL: http://www.econ.ed.ac.uk/papers/id123_esedps.pdf
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Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 123.

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Length: 21
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:edn:esedps:123
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  1. Andrew Postlewaite, . ""The Social Basis of Interdependent Preferences''," CARESS Working Papres 97-14, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  2. Aghion, Philippe & Caroli, Eve & García-Peñalosa, Cecilia, 1999. "Inequality and Economic Growth: The Perspective of the New Growth Theories," Scholarly Articles 12502063, Harvard University Department of Economics.
  3. Abhijit V. Banerjee & Esther Duflo, 2000. "Inequality and Growth: What Can the Data Say?," NBER Working Papers 7793, National Bureau of Economic Research, Inc.
  4. Cooper, B. & Garcia-Penalosa, C., 1998. "Status Effects and Neganive Utility Growth," Economics Papers 150, Economics Group, Nuffield College, University of Oxford.
  5. Ed Hopkins & Tatiana Kornienko, 2002. "Running to Keep in the Same Place: Consumer Choice as a Game of Status," ESE Discussion Papers 92, Edinburgh School of Economics, University of Edinburgh.
  6. Kristin J. Forbes, 2000. "A Reassessment of the Relationship between Inequality and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 869-887, September.
  7. Cole, Harold L & Mailath, George J & Postlewaite, Andrew, 1992. "Social Norms, Savings Behavior, and Growth," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1092-1125, December.
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