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On the Equilibrium and Welfare Consequences of Getting Ahead of the Smiths

Author

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  • Frédéric Gavrel

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

  • Thérèse Rebière

    (LIRSA - Laboratoire interdisciplinaire de recherche en sciences de l'action - CNAM - Conservatoire National des Arts et Métiers [CNAM], Institute for the Study of Labor (IZA) Bonn)

Abstract

This paper provides an analysis of the social consequences of people seeking to get ahead of the Smiths. All individuals attempt to reach a higher rank than the Smiths, including the Smiths themselves. This attitude gives rise to an equilibrium in which all individuals have equal utilities but unequal (gross) incomes. Due to a rat-race effect, individuals devote too much energy to climbing the social scale.However, laissez-faire equilibrium is an equal-utility constrained social optimum. Conversely, a utilitarian social planner would not choose utility equality. Unexpectedly, this social ambition theory fairly wellaccounts for empirical intermediate wage inequality.

Suggested Citation

  • Frédéric Gavrel & Thérèse Rebière, 2018. "On the Equilibrium and Welfare Consequences of Getting Ahead of the Smiths," Post-Print halshs-01242504, HAL.
    • Handle: RePEc:hal:journl:halshs-01242504
    DOI: 10.1111/jpet.12261
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01242504
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    References listed on IDEAS

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    Cited by:

    1. Frédéric Gavrel, 2016. "Keeping Up with the Joneses as an Outcome of Getting Ahead of the Smiths. A Two-Stage Veblenian Status Game," Working Papers halshs-01319593, HAL.
    2. Frédéric Gavrel, 2019. "One Dynamic Game for Two Veblenian Ideas. Income Redistribution is Pareto-Improving in the Presence of Social Concerns," Working Papers halshs-02083460, HAL.

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    Keywords

    Inequalities; Efficiency; Social interactions; Getting ahead of the Smiths; Well-being;
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