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Choosing to keep up with the Joneses and income inequality

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  • Barnett, Richard C.
  • Bhattacharya, Joydeep
  • Bunzel, Helle

Abstract

We study a variant of the conventional keeping-up-with-the-Joneses setup in which heterogeneous-ability agents care both about consumption and leisure and receive an utility premium if their consumption exceeds that of the Joneses'. Unlike the conventional setup in which all agents are assumed to want to participate in the rat race of staying ahead of the Joneses, our formulation explicitly permits the option to drop out. Mean-preserving changes in the spread of the underlying ability distribution, via its effect on the economy-wide composition of rat-race participants and drop-outs, have important consequences for induced distributions of leisure and income, consequences that are unobtainable using conventional keeping-up preferences.

Suggested Citation

  • Barnett, Richard C. & Bhattacharya, Joydeep & Bunzel, Helle, 2009. "Choosing to keep up with the Joneses and income inequality," ISU General Staff Papers 200907290700001104, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:200907290700001104
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    Cited by:

    1. Barnett, Richard C. & Bhattacharya, Joydeep & Bunzel, Helle, 2019. "The fight-or-flight response to the Joneses and inequality," Journal of Economic Dynamics and Control, Elsevier, vol. 101(C), pages 187-210.
    2. Allen, Jeffrey & Chakraborty, Shankha, 2018. "Aspirations, health and the cost of inequality," Journal of Economic Dynamics and Control, Elsevier, vol. 86(C), pages 144-164.
    3. Hof, Franz X. & Prettner, Klaus, 2019. "The quest for status and R&D-based growth," Journal of Economic Behavior & Organization, Elsevier, vol. 162(C), pages 290-307.
    4. Barnett, Richard & Bhattacharya, Joydeep & Bunzel, Helle, 2016. "Do the Joneses make you financially vulnerable?," School of Economics Working Paper Series 2016-11, LeBow College of Business, Drexel University.
    5. Barnett, Richard C. & Bhattacharya, Joydeep & Bunzel, Helle, 2018. "The Fight-or-Flight Response to the Joneses and Income Inequality," ISU General Staff Papers 201812120800001060, Iowa State University, Department of Economics.
    6. Boris Gershman, 2014. "The two sides of envy," Journal of Economic Growth, Springer, vol. 19(4), pages 407-438, December.
    7. Hof, Franz X. & Prettner, Klaus, 2019. "Relative consumption, relative wealth, and long-run growth: When and why is the standard analysis prone to erroneous conclusions?," Hohenheim Discussion Papers in Business, Economics and Social Sciences 12-2019, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    8. Michel Denuit & Rachel Huang & Larry Tzeng, 2014. "Bivariate almost stochastic dominance," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(2), pages 377-405, October.
    9. Chang, Ming-Jen & Chang, Juin-Jen & Shieh, Jhy-Yuan, 2014. "Keeping up with the Joneses and exchange rate volatility in a Redux model," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 569-584.
    10. Barnett, Richard & Bhattacharya, Joydeep & Bunzel, Helle, 2016. "The Fight-or-Flight Response to the Joneses," School of Economics Working Paper Series 2016-12, LeBow College of Business, Drexel University.
    11. Chen, Yaqing & Dawson, Matthew & Müller, Hans-Georg, 2020. "Rank dynamics for functional data," Computational Statistics & Data Analysis, Elsevier, vol. 149(C).
    12. Sanou Issa, 2021. "Jealousy and Wealth Inequality: The Cases of Heterogeneous Preferences and Elastic Labor Supply," Working Papers hal-03408115, HAL.
    13. Allen, Jeffrey & Chakraborty, Shankha, 2022. "Inequality and the Ability to Aspire," Journal of Economic Behavior & Organization, Elsevier, vol. 203(C), pages 264-283.
    14. Vincenzo Lombardo, 2021. "Social inclusion through social status and the emergence of development traps," Metroeconomica, Wiley Blackwell, vol. 72(4), pages 798-825, November.
    15. Florian Chávez-Juárez, 2017. "On the Role of Agent-based Modeling in the Theory of Development Economics," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 713-730, August.

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    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

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