On the equilibrium and welfare consequences of getting ahead of the Smiths

Frédéric Gavrel and Therese Rebiere

Journal of Public Economic Theory, 2018, vol. 20, issue 2, 257-270

Abstract: This paper provides an analysis of the social consequences of people seeking to get ahead of the Smiths. All individuals attempt to reach a higher rank than the Smiths, including the Smiths 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. However, laissez‐faire equilibrium is an equal‐utility constrained social optimum. Conversely, a utilitarian social planner would not choose utility equality. Unexpectedly, this social ambition theory fairly well accounts for empirical intermediate wage inequality.

Date: 2018
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https://doi.org/10.1111/jpet.12261

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Working Paper: On the Equilibrium and Welfare Consequences of Getting Ahead of the Smiths (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jpbect:v:20:y:2018:i:2:p:257-270

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