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Do the Joneses make you financially vulnerable?

Richard Barnett (), Joydeep Bhattacharya () and Helle Bunzel

No 2016-11, School of Economics Working Paper Series from LeBow College of Business, Drexel University

Abstract: This paper studies a model economy populated with agents of differing incomes that get a utility boost when their consumption keeps up with their neighbors, the proverbial Joneses. The resulting utility function is non-concave. In this setup, participation in a fair consumption lottery has the potential to make some agents ex-ante better off but more financially vulnerable. More people of different incomes join the lottery pool when the ‘kick’ from keeping up increases. Worsening income inequality may increase the number of financially vulnerable people. The analysis offers broad-brushstroke insights into the connection between inequality and financial vulnerability. This paper studies a model economy populated with agents of differing incomes that get a utility boost when their consumption keeps up with their neighbors, the proverbial Joneses. The resulting utility function is non-concave. In this setup, participation in a fair consumption lottery has the potential to make some agents ex-ante better off but more financially vulnerable. More people of different incomes join the lottery pool when the ‘kick’ from keeping up increases. Worsening income inequality may increase the number of financially vulnerable people. The analysis offers broad-brushstroke insights into the connection between inequality and financial vulnerability.

Keywords: Keeping up with the Joneses; consumption externalities; non-concave utility; lotteries; inequality (search for similar items in EconPapers)
JEL-codes: D01 R21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mic and nep-upt
Date: 2016-08-31
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