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Envy Today, Inequality Tomorrow: How Present Bias Shapes the Wealth Distribution

Author

Listed:
  • Kirill Borissov

    (Non-government Educational Institution "European University at St. Petersburg", Russia)

  • Mikhail Pakhnin

    (University of the Balearic Islands, Spain)

  • Ronald Wendner

    (University of Graz, Austria)

Abstract

We study the effects of envy (relative consumption concerns), drawing on evidence that preferences typically exhibit present bias. We employ a Ramsey-type model with agents who differ in initial capital endowments and account for present-biased envy: agents are naive and care about how their consumption levels compare to those of others only in the current period. Present-biased envy, unlike permanent envy, significantly affects both the level of inequality and the aggregate income level in an economy. First, it generates the Matthew effect (the relatively rich get richer while the relatively poor get poorer), and after a finite time, only the initially wealthiest agents own the entire capital stock and the debts of others who are in the maximum borrowing state. Second, in contrast to both an economy without envy or with permanent envy, present-biased envy makes agents effectively more impatient, reducing the long-run capital stock and aggregate income level.

Suggested Citation

  • Kirill Borissov & Mikhail Pakhnin & Ronald Wendner, 2025. "Envy Today, Inequality Tomorrow: How Present Bias Shapes the Wealth Distribution," Graz Economics Papers 2025-02, University of Graz, Department of Economics.
    • Handle: RePEc:grz:wpaper:2025-02
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    More about this item

    Keywords

    Relative consumption; Envy; Time inconsistency; Sliding equilibrium; Perfect foresight; Wealth distribution; Ramsey conjecture.;
    All these keywords.

    JEL classification:

    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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