The quest for status and endogenous labor supply: the relative wealth framework

Abstract

This paper introduces the quest for status into the Ramsey model with endogenous labor supply. We focus our attention on relative wealth preferences. In contrast to relative consumption preferences, they allow for the possibility that agents work too little in the long run, while under both speci…cations the steady-state levels of consumption and the stock of physical capital exceed their socially optimal counterparts. The initial phase of transitional dynamics is unambiguously characterized by under-consumption and excessive work e¤ort. The social optimum can be replicated by taxing capital income, where the optimal tax rate increases as physical capital accumulates.JEL classi…cation: D62, D91, E21.

Boosting taxes for boasting about houses? Status concerns in the housing market

“…They find that status economies exhibit an adjusted, or in other words, "effective" elasticity of utility with respect to nondurable consumption and conclude that the decentralized solutions are the same for status and status-free economies if this effective elasticity coincides with the "standard" elasticity of utility of the status-free economy. Likewise, Fisher and Hof (2008) show analogously that under relative wealth preferences status and status-free economies behave the same if the effective time preference rate of the status economy equals the one of the standard Ramsey model.…”

“…The intuition is that households 1 There are also a number of papers which investigate the interaction of externalities from status concerns with those from capital accumulation or endogenous R&D in endogenous growth models, see e.g. Jeanne (1997, 2001), Futagami and Shibata (1998), Liu and Turnovsky (2005), Turnovsky and Monteiro (2007), Fisher and Hof (2008), Strulik (2015), Hof and Prettner (2016).…”

Do Status-Seeking Motives Enhance Economic Growth? A Small Open Growth Model

“…1. Social status seeking has been widely studied in many contexts, such as in analyzing asset pricing [e.g., Gali (1994) and Campbell and Cochrane (1999)], wealth distribution [e.g., Pham (2005) and Tsoukis (2007)], optimal taxation [e.g., Rauscher (1997), Ljungqvist and Uhlig (2000), Liu and Turnovsky (2005), and Fisher and Hof (2008))], and the effectiveness of government policies [e.g., Fisher (2010)].…”

Positional Effects in Public Good Provision. Strategic Interaction and Inertia

“…The standard assumption in economic theory that "each individual's preferences are independent of the behavior of other individuals" was called into question already in the mid twentieth century by Duesenberry (1949). 5 He argued that psychological and sociological reasons support the opposite view that preferences are interdependent. Duesenberry's relative income hypothesis states that an individual, in her search for status, seeks to signal wealth through her consumption decisions.…”