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On the Equilibrium and Welfare Consequences of 'Keeping up with the Joneses'

Author

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  • Gavrel, Frédéric

    (University of Caen)

  • Rebiere, Therese

    (CNAM, Paris)

Abstract

This paper provides an analysis of the social consequences of people seeking to keep up with the Joneses. All individuals attempt to reach a higher rank than the Joneses, including the Joneses 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 in this equilibrium. However, laissez-faire equilibrium is an equal-utility constrained social optimum. Unexpectedly, numerical simulations show that this theory could account for the observed distribution of intermediate wages.

Suggested Citation

  • Gavrel, Frédéric & Rebiere, Therese, 2015. "On the Equilibrium and Welfare Consequences of 'Keeping up with the Joneses'," IZA Discussion Papers 9056, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp9056
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    References listed on IDEAS

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    More about this item

    Keywords

    Keeping up with the Joneses; social interactions; well-being; inequalities; efficiency;
    All these keywords.

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • D6 - Microeconomics - - Welfare Economics
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • Z1 - Other Special Topics - - Cultural Economics

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