Status, Inequality and Intertemporal Choice

Xia Bianjun
Additional contact information
Xia Bianjun: Simon Fraser University, bxia@sfu.ca

The B.E. Journal of Theoretical Economics, 2010, vol. 10, issue 1, 23

Abstract: This paper develops an intertemporal model in which individuals care about consumption not only for its own sake, but also for the status it implies. By putting an additive status term into the utility function, I show that the level of inequality in the initial wealth distribution affects individuals' saving and consumption behavior. The direction of the distortion in intertemporal choice relative to the standard model without a concern for status depends on the elasticity of intertemporal substitution in the utility from absolute consumption. In particular, I prove that, for conventional parameter values of the elasticity (e.g. CES parameter larger than one), people save less than what they do without the status concern but the magnitude of this decrease is reduced by the concern for future status. It is also possible that people save more than what they do without the status concern. I also analyze how changes in the initial wealth distribution affect saving. For example, when wealth is Pareto distributed, for a reasonable parameterization, the rich save more and the poor save less when society gets more unequal, which implies that inequality is self-enforcing in this economy. Finally, the resulting allocation is Pareto inefficient due to the externalities generated by the concern for status.

Keywords: status; inequality; intertemporal choice; elasticity of intertemporal substitution (search for similar items in EconPapers)
Date: 2010
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
https://doi.org/10.2202/1935-1704.1606 (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:bejtec:v:10:y:2010:i:1:n:44

Ordering information: This journal article can be ordered from
https://www.degruyter.com/journal/key/bejte/html

DOI: 10.2202/1935-1704.1606

Access Statistics for this article

The B.E. Journal of Theoretical Economics is currently edited by Burkhard C. Schipper

More articles in The B.E. Journal of Theoretical Economics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().