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

25 Pages Posted: 18 May 2015

See all articles by Frédéric Gavrel

Frédéric Gavrel

Université de Caen

Therese Rebiere

Conservatoire National des Arts et Métiers; IZA Institute of Labor Economics

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.

Keywords: Keeping up with the Joneses, social interactions, well-being, inequalities, efficiency

JEL Classification: D3, D6, D8, I3, Z1

Suggested Citation

Gavrel, Frédéric and Rebiere, Therese, On the Equilibrium and Welfare Consequences of 'Keeping Up with the Joneses'. IZA Discussion Paper No. 9056, Available at SSRN: https://ssrn.com/abstract=2606909 or http://dx.doi.org/10.2139/ssrn.2606909

Frédéric Gavrel (Contact Author)

Université de Caen ( email )

F-14032 Caen Cedex, Normandy
France

Therese Rebiere

Conservatoire National des Arts et Métiers ( email )

292 rue Saint Martin
Paris, 75003
France

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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