Free Riding in Status Competition

11 Pages Posted: 11 Dec 2023

See all articles by Klaus Kultti

Klaus Kultti

University of Helsinki, Department of Political and Economic Studies

Teemu Pekkarinen

Massachusetts Institute of Technology (MIT)

Date Written: November 29, 2023

Abstract

We consider a finite economy with men and women. The agents have status concerns such that when a particular agent has k agents of the same type below him/her in the income distribution, he/she gets utility kA, where A>0, from status. Acquiring income is costly and once the income distribution is realised, the men and women form pairs in a positive assortative manner. A pair shares its income and the gains from status are realised only after the pairs are formed. The income acquisition game has the equilibrium in mixed strategies, and the prize distribution, i.e. partner's income and attainable status, is an equilibrium object. We show that contrary to the case where the prize distribution is exogenous not all the gains are competed away. This is because income sharing leads to free riding which mitigates the wasteful competition for status. We also show that the heterogeneity of the agents has the same effect even if the the prize distribution is exogenous.

Keywords: Status Competition, Free Riding, Matching.

JEL Classification: D4

Suggested Citation

Kultti, Klaus and Pekkarinen, Teemu, Free Riding in Status Competition (November 29, 2023). Available at SSRN: https://ssrn.com/abstract=4648688 or http://dx.doi.org/10.2139/ssrn.4648688

Klaus Kultti

University of Helsinki, Department of Political and Economic Studies ( email )

Teemu Pekkarinen (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

HOME PAGE: http://www.teemupekkarinen.com

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