The Two Sides of Envy

64 Pages Posted: 28 Sep 2010 Last revised: 13 Dec 2014

See all articles by Boris Gershman

Boris Gershman

American University - Department of Economics

Date Written: July 1, 2014

Abstract

The two sides of envy, destructive and constructive, give rise to qualitatively different equilibria, depending on the economic, institutional, and cultural environment. If investment opportunities are scarce, inequality is high, property rights are poorly protected, and social comparisons are strong, society is likely to be in the "fear equilibrium,'' in which better endowed agents restrain their efforts to prevent destructive envy of the relatively poor. Otherwise, the standard "keeping up with the Joneses'' competition arises, and envy is satisfied through suboptimally high efforts. Economic growth expands the production possibilities frontier and triggers an endogenous transition from one equilibrium to the other causing a qualitative shift in the relationship between envy and economic performance: envy-avoidance behavior with its adverse effect on investment paves the way to creative emulation. From a welfare perspective, better institutions and wealth redistribution that move the society away from the low-output fear equilibrium need not be Pareto improving in the short run, as they unleash the negative consumption externality, but in the long run such policies are likely to increase social welfare due to enhanced productivity growth.

Keywords: Economic growth, Envy, Inequality, Property rights, Redistribution

JEL Classification: D31, D62, D74, O10, O43, Z13

Suggested Citation

Gershman, Boris, The Two Sides of Envy (July 1, 2014). Available at SSRN: https://ssrn.com/abstract=1683803 or http://dx.doi.org/10.2139/ssrn.1683803

Boris Gershman (Contact Author)

American University - Department of Economics ( email )

4400 Massachusetts Avenue NW
Washington, DC 20016-8029
United States

HOME PAGE: http://nw08.american.edu/~gershman/

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