Economic Choices and Status: Measuring Preferences for Income Rank

38 Pages Posted: 30 Aug 2010

See all articles by Redzo Mujcic

Redzo Mujcic

University of Queensland

Paul Frijters

Queensland University of Technology - School of Economics and Finance

Abstract

In this paper we report on the trade-offs that 1,068 Australian university students make between absolute income and the rank of that income in hypothetical income distributions. We find that income rank matters independently of absolute income, with greater weight given to rank by males, migrants, and individuals from wealthy families. Rank-sensitive individuals require as much as a 200 per cent increase in income to be compensated for going from the top to the bottom of the income distribution. In terms of reference groups, we find migrants who reside abroad for longer periods of time, and with more affluent job titles, are more likely to compare themselves to others at the destination. This allows us to derive a dynamic choice model of compensating incomes that allows for endogenous tastes and rates of assimilation. The model predicts the average respondent to need a permanent increase in income of up to $10,000 when moving from a society with a mean income of $14,000 (e.g. Mexico) to a society with a mean income of $46,000 (e.g. the USA).

Keywords: relative utility, status, income rank, stated-preferences, migrants

JEL Classification: D03, C91, J61

Suggested Citation

Mujcic, Redzo and Frijters, Paul, Economic Choices and Status: Measuring Preferences for Income Rank. IZA Discussion Paper No. 5157. Available at SSRN: https://ssrn.com/abstract=1667781

Redzo Mujcic (Contact Author)

University of Queensland ( email )

Paul Frijters

Queensland University of Technology - School of Economics and Finance ( email )

GPO Box 2434
2 George Street
Brisbane, Queensland 4001
Australia
(07) 3864 9364 (Phone)
(07) 3864 1500 (Fax)

HOME PAGE: http://www.bus.qut.edu.au/paulfrijters/index.jsp

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