The Equilibrium Distribution of Income and the Market for Status

Posted: 29 Mar 2005

See all articles by Gary S. Becker

Gary S. Becker

University of Chicago - Department of Economics; University of Chicago - Booth School of Business

Kevin M. Murphy

University of Chicago; National Bureau of Economic Research (NBER)

Iván Werning

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Abstract

This paper explores the implications for risk-taking behavior and the equilibrium distribution of income of assuming that the desire for status positions is a powerful motive and that it raises the marginal utility of consumption. In contrast to previous analyses, we consider the case in which status positions are sold in a hedonic market. We show that such a complete hedonic market in status positions can be perfectly replicated by a simpler arrangement with a "status good" and a social norm that assigns higher status to those that consume more of this good. The main result is that for a wide range of initial conditions the equilibrium distributions of income, status, and consumption are the same, that this allocation requires inequality of income and consumption, and that this allocation coincides with the optimum of a utilitarian planner.

Suggested Citation

Becker, Gary S. and Murphy, Kevin M. and Werning, Ivan, The Equilibrium Distribution of Income and the Market for Status. Journal of Political Economy, Vol. 113, pp. 282-310, April 2005. Available at SSRN: https://ssrn.com/abstract=678864

Gary S. Becker

University of Chicago - Department of Economics ( email )

1126 East 59th Street
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University of Chicago - Booth School of Business

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Kevin M. Murphy

University of Chicago ( email )

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National Bureau of Economic Research (NBER)

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Ivan Werning (Contact Author)

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

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617-253-1330 (Fax)

HOME PAGE: http://econ-www.mit.edu/faculty/iwerning

National Bureau of Economic Research (NBER) ( email )

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