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Abstract:
The paper develops a signalling theory of conspicuous consumption where the drive toward spending on an otherwise unuseful good comes from the desire to enter clubs and benefit from the provision of club good financed by members of a club and from a social status effect. Individual incomes are unobserved and admission to a club is based on the inference of an individual's capacity to contribute to the public good. By entering in a club, individuals also gain a certain social status. This inference in turn is based on the signal emitted by spending on a conspicuous good. Because of the joint incentives of club good and social status, people may be induced to overspend in the conspicuous good. We characterise both the pooling equilibria and the separating equilibria of the signalling game played by individuals. We then ask whether taxation can be Pareto-improving and which tax scheme would be chosen by the median voter in this society.

Abstract:
In this paper, we abandon the stylized median voter and study (i) how distributional tensions can act in many different ways depending on social affinity and on the prospect of upward or downward mobility of the different income classes, (ii) income distribution dynamics, intergenerational community formation and growth. In a world in which redistributive policies, whether fiscal or educational, affect how the entire economy breaks up into different communities, we find multiple politico-economic regimes that are supported by new international empirical evidence. In particular, we highlight a political economy decision mechanism through which the pressure for redistribution can be highly non linear therefore providing an explanation as to why more inequality can be associated with less, rather than more, redistributive taxation. Our framework displays multiple steady states which depend on historical economic discrimination. We also provide sufficient conditions on the initial pattern of income distribution and local versus social spillovers ratio under which inequality and segregation persist in the long run.

Community formation, growth, human capital, redistribution, and social mobility

Abstract:
We investigate the design of incentives for public good quality provision in a dynamic regulation setting in which maintenance efforts and quality shocks have durable effects. When the regulator contracts with a sequence of agents, asymmetries of information can lead to over-provision of quality under optimal regulation, reflecting a dynamic rent extraction motive. When the regulator hires a single agent to manage public good quality, over-provision of quality can also occur as a result of quality pooling, which typically occurs if quality depreciates slowly and the discount factor is large. We further show that for small levels of asymmetric information, the regulator prefers to hire a single agent rather than to contract with a sequence of agents, provided all parties can commit to a long-term contract. When no such commitment is feasible, the fact that quality physically links periods together leads to a ratchet effect even when private information is recurring, and shorter franchises are beneficial from a social point of view.

Quality, Regulation, Asymmetric Information

Abstract:
This article studies how distributional tensions can act in many different ways depending on the social affinity between the different economic classes and their prospect of upward or downward mobility. We consider that socioeconomic group membership through its implied social interactions and peer effects is an important determinant of an individual's outcome. Agents, while voting on a social contract, take into account the consequences of their choice over their ex post belonging to a particular community. Thus, the endogenous sorting of the population into clusters may lead to a nonmonotonic relationship between inequality and the pressure for redistributive policies.