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Diverging identities: a model of class formation

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  • Paul Collier

Abstract

This paper is an application of Identity Economics. Since the literature in this field is recent, the paper begins with an extensive review of the key contributions. The current paper analyses the process and psychological costs of social polarization arising from economic inequalities. It may have some application to the current social divisions evident in the votes for Brexit and Donald Trump, and protest movements such as the gilets jaunes. In a simple model, people rationally maximize their utility from esteem, by selecting a subjective salient identity from two objective identities: nationality and job. The model shows how an increase in wages for the upper half of the population can lead those with high incomes to drop nationality as their salient identity, forming a new ‘elite’ class. This rational switch in the identity of high-income workers has efficiency and redistributive effects, reducing aggregate utility and generating regressive transfers.

Suggested Citation

  • Paul Collier, 2020. "Diverging identities: a model of class formation," Oxford Economic Papers, Oxford University Press, vol. 72(3), pages 567-584.
    • Handle: RePEc:oup:oxecpp:v:72:y:2020:i:3:p:567-584.
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    File URL: http://hdl.handle.net/10.1093/oep/gpz047
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    More about this item

    JEL classification:

    • A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
    • B55 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Social Economics
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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