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Choosing to Keep Up with the Joneses and Income Inequality

  • Barnett, Richard C.
  • Bhattacharya, Joydeep
  • Bunzel, Helle

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.

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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12862.

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Date of creation: 10 Jan 2008
Date of revision:
Publication status: Published in Economic Theory 2010, vol. 45 no. 3, pp. 469-496
Handle: RePEc:isu:genres:12862
Contact details of provider: Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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  1. Andrew B. Abel, 1990. "Asset Prices under Habit Formation and Catching up with the Joneses," NBER Working Papers 3279, National Bureau of Economic Research, Inc.
  2. Galor, Oded, 1996. "Convergence? Inferences from Theoretical Models," Economic Journal, Royal Economic Society, vol. 106(437), pages 1056-69, July.
  3. Cecilia García-Peñalosa & Stephen Turnovsky, 2008. "Consumption externalities: a representative consumer model when agents are heterogeneous," Economic Theory, Springer, vol. 37(3), pages 439-467, December.
  4. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, vol. 93(1), pages 423-428, March.
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  6. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  7. Roger Hartley & Lisa Farrell, 1998. "Can Expected Utility Theory Explain Gambling?," Keele Department of Economics Discussion Papers (1995-2001) 98/02, Department of Economics, Keele University.
  8. Van Long, Ngo & Shimomura, Koji, 2004. "Relative wealth, status-seeking, and catching-up," Journal of Economic Behavior & Organization, Elsevier, vol. 53(4), pages 529-542, April.
  9. repec:bla:restud:v:58:y:1991:i:2:p:211-35 is not listed on IDEAS
  10. Clark, Andrew E. & Oswald, Andrew J., 1998. "Comparison-concave utility and following behaviour in social and economic settings," Journal of Public Economics, Elsevier, vol. 70(1), pages 133-155, October.
  11. Cecilia Garcia-Penalosa & Stephen Turnovsky, 2005. "Growth and Income Inequality: A Canonical Model," Working Papers UWEC-2006-04-P, University of Washington, Department of Economics, revised Jan 2005.
  12. Gary S. Becker & Kevin M. Murphy & Ivan Werning, 2005. "The Equilibrium Distribution of Income and the Market for Status," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 282-310, April.
  13. Koichi Kawamoto, 2009. "Status-seeking behavior, the evolution of income inequality, and growth," Economic Theory, Springer, vol. 39(2), pages 269-289, May.
  14. Abhijit Banerjee & Andrew F. Newman, 1989. "Risk-Bearing and the Theory of Income Distribution," Discussion Papers 877, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  15. Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1047-64, October.
  16. Milton Friedman & L. J. Savage, 1948. "The Utility Analysis of Choices Involving Risk," Journal of Political Economy, University of Chicago Press, vol. 56, pages 279.
  17. Drakopoulos, Stavros A., 2005. "The paradox of Happiness: towards an alternative explanation," MPRA Paper 6870, University Library of Munich, Germany.
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