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Economic Choices and Status: Measuring Preferences for Income Rank

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  • Mujcic, Redzo

    () (University of Queensland)

  • Frijters, Paul

    () (London School of Economics)

Abstract

In this paper we report on the trade-offs that 1,068 Australian university students make between absolute income and the rank of that income in hypothetical income distributions. We find that income rank matters independently of absolute income, with greater weight given to rank by males, migrants, and individuals from wealthy families. Rank-sensitive individuals require as much as a 200 per cent increase in income to be compensated for going from the top to the bottom of the income distribution. In terms of reference groups, we find migrants who reside abroad for longer periods of time, and with more affluent job titles, are more likely to compare themselves to others at the destination. This allows us to derive a dynamic choice model of compensating incomes that allows for endogenous tastes and rates of assimilation. The model predicts the average respondent to need a permanent increase in income of up to $10,000 when moving from a society with a mean income of $14,000 (e.g. Mexico) to a society with a mean income of $46,000 (e.g. the USA).

Suggested Citation

  • Mujcic, Redzo & Frijters, Paul, 2010. "Economic Choices and Status: Measuring Preferences for Income Rank," IZA Discussion Papers 5157, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp5157
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    References listed on IDEAS

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    1. Olof Johansson-Stenman & Fredrik Carlsson & Dinky Daruvala, 2002. "Measuring Future Grandparents" Preferences for Equality and Relative Standing," Economic Journal, Royal Economic Society, vol. 112(479), pages 362-383, April.
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    Cited by:

    1. Aronsson, Thomas & Johansson-Stenman, Olof, 2013. "Publicly Provided Private Goods and Optimal Taxation when Consumers Have Positional Preferences," Working Papers in Economics 558, University of Gothenburg, Department of Economics.
    2. Englmaier, Florian & Grimm, Stefan & Schindler, David & Schudy, Simeon, 2018. "The Effect of Incentives in Non-Routine Analytical Team Tasks - Evidence From a Field Experiment," Rationality and Competition Discussion Paper Series 71, CRC TRR 190 Rationality and Competition.
    3. Clark, Andrew E. & D'Ambrosio, Conchita, 2014. "Attitudes to Income Inequality: Experimental and Survey Evidence," IZA Discussion Papers 8136, Institute for the Study of Labor (IZA).
    4. Goerke, Laszlo & Neugart, Michael, 2017. "Social comparisons in oligopsony," Journal of Economic Behavior & Organization, Elsevier, vol. 141(C), pages 196-209.
    5. Laszlo Goerke & Michael Neugart, 2017. "Social comparisons in Oligopsony," IAAEG Discussion Papers until 2011 201704, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    6. Clark, Andrew E. & D'Ambrosio, Conchita, 2014. "Attitudes to Income Inequality: Experimental and Survey Evidence," IZA Discussion Papers 8136, Institute for the Study of Labor (IZA).
    7. Sugata Marjit & Arijit Mukherjee & Koushik Kumar Hati, 2015. "Relative Social Status and Conflicting Measures of Poverty: A Behavioural Analytical Model," Discussion Papers 2015-02, University of Nottingham, GEP.
    8. Thomas Aronsson & Olof Johansson-Stenman, 2014. "When Samuelson Met Veblen Abroad: National and Global Public Good Provision when Social Comparisons Matter," Economica, London School of Economics and Political Science, vol. 81(322), pages 224-243, April.
    9. Aronsson, Thomas & Johansson-Stenman, Olof, 2014. "State-variable public goods and social comparisons," Journal of Environmental Economics and Management, Elsevier, vol. 68(2), pages 390-410.
    10. Steffen Lohmann, 2015. "Information technologies and subjective well-being: does the Internet raise material aspirations?," Oxford Economic Papers, Oxford University Press, vol. 67(3), pages 740-759.
    11. Sugata Marjit & Lei Yang, 2015. "Accumulation with Malnutrition - The Role of Status Seeking Behavior," Discussion Papers Series 544, School of Economics, University of Queensland, Australia.
    12. Aronsson, Thomas & Johansson-Stenman, Olof, 2015. "Keeping up with the Joneses, the Smiths and the Tanakas: On international tax coordination and social comparisons," Journal of Public Economics, Elsevier, vol. 131(C), pages 71-86.
    13. Gamannossi degl’Innocenti, Duccio & Rablen, Matthew D., 2018. "Tax Evasion on a Social Network," IZA Discussion Papers 11535, Institute for the Study of Labor (IZA).
    14. Aronsson, Thomas & Johansson-Stenman, olof, 2013. "State-Variable Public Goods and Social Comparisons over Time," Working Papers in Economics 555, University of Gothenburg, Department of Economics.
    15. Goerke, Laszlo & Hillesheim, Inga, 2013. "Relative consumption, working time, and trade unions," Labour Economics, Elsevier, vol. 24(C), pages 170-179.
    16. Marjit, Sugata & Roychowdhury, Punarjit, 2011. "Status, Poverty and Trade," MPRA Paper 33730, University Library of Munich, Germany.
    17. Wai Chiu Woo, 2016. "Quantity versus variety: Which aspect does status-seeking promote?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 63(2), pages 93-106, June.
    18. Duccio Gamannossi degl'Innocenti & Matthew D. Rablen, 2018. "Tax Evasion on a Social Network," CESifo Working Paper Series 7063, CESifo Group Munich.
    19. Jordi Brandts & Klarita Gërxhani & Arthur Schram, 2015. "Status Ranking: A Hidden Channel to Gender Inequality under Competition," Working Papers 817, Barcelona Graduate School of Economics.
    20. Sugata Marjit & Sattwik Santra & Koushik Kumar Hati, 2014. "Does inequality affect the consumption patterns of the poor? – The role of status seeking behaviour," Discussion Papers Series 514, School of Economics, University of Queensland, Australia.
    21. Yoshiyasu Ono & Katsunori Yamada, 2012. "Difference or Ratio: Implication of Status Preference on Stagnation," ISER Discussion Paper 0856rr, Institute of Social and Economic Research, Osaka University, revised Jan 2014.
    22. Marjit, Sugata & Santra, Sattwik & Hati, Koushik Kumar, 2014. "Does inequality affect the consumption patterns of the poor? – The role of “status seeking” behaviour," MPRA Paper 54118, University Library of Munich, Germany.
    23. repec:bla:rdevec:v:21:y:2017:i:4:p:1178-1190 is not listed on IDEAS
    24. Aronsson, Thomas & Johansson-Stenman, Olof, 2014. "Positional preferences in time and space: Optimal income taxation with dynamic social comparisons," Journal of Economic Behavior & Organization, Elsevier, vol. 101(C), pages 1-23.

    More about this item

    Keywords

    status; income rank; relative utility; stated-preferences; migrants;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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