Inequality and Growth in the Presence of Competition for Status

Research output: Working paperDiscussion paper

Abstract

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 individualâ??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.
Original languageEnglish
PublisherEdinburgh School of Economics, University of Edinburgh
Publication statusPublished - Aug 2005

Publication series

NameESE Discussion Papers

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