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Present-Biased Envy and Inequality

Author

Listed:
  • Kirill Borissov

    (European University of St. Petersburg (EUSP))

  • Mikhail Pakhnin

    (University of the Balearic Islands, Spain)

  • Ronald Wendner

    (University of Graz, Austria)

Abstract

We analyze the effects of envy (relative consumption concerns), drawing on evidence that preferences exhibit present bias. We introduce present-biased envy, whereby naive agents compare their consumption to that of others only in the current period, into a Ramsey model in which agents differ in their initial capital endowments. Unlike permanent envy, present-biased envy generates the Matthew effect (the relatively rich become richer while the relatively poor become poorer) and eventually divides society into two classes. The initially wealthiest agents own the entire capital stock and the debts of others, while all other agents are in the maximum borrowing state.

Suggested Citation

  • Kirill Borissov & Mikhail Pakhnin & Ronald Wendner, 2026. "Present-Biased Envy and Inequality," Graz Economics Papers 2026-01, University of Graz, Department of Economics.
    • Handle: RePEc:grz:wpaper:2026-01
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    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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