Socio-Behavioural Traits and Long-Run Growth

This chapter presents the foundations of macroeconomic models that incorporate social comparisons. The exposition is somewhat technical but accessible. Focusing on long-term issues, we work with a standard intertemporally optimising endogenous growth model. Social comparisons take the form of a status motive in relation to consumption and wealth (capital). We explore how the intensity of status-seeking affects the rate of long-run growth, labour supply, work-life balance, and welfare. As the status motive induces a negative externality, the required taxation that helps the economy move to optimum is discussed. Other external effects (e.g., “learning-by-doing”) are also considered. Furthermore, the effect of status on education, fertility choices, and the quality-quantity trade-off on children is analysed. We conclude with a discussion of the interaction between population and general economic growth and the (possible) “Mozart effect”, whereby a greater population will have more “Mozarts” (i.e. geniuses), thus fostering human capital and growth. By highlighting the interplay between social comparisons and critical economic outcomes, we demonstrate the important implications of incorporating sociological elements into macroeconomic theory.