On the optimality of social status seeking

Chia-Ying Liu and Wei-Neng Wang

Economic Modelling, 2020, vol. 93, issue C, 520-525

Abstract: We present an endogenous growth model in which households display their social status by holding not only capital but also bonds. According to conventional wisdom, the quest for social status provides an incentive for individuals to accumulate wealth, which stimulates economic growth and elevates it to a socially optimal level. Instead, we show that portfolio allocation is crucial to the growth-enhancing effect of the quest for social status. If households exhibit their social status by accumulating physical capital and holding government bonds, the quest for social status may not increase economic growth. As a result, social status seeking cannot achieve the social optimum. Calibrating our model to data, we find that if government bonds constitute part of the wealth for households’ quest for social status, the quest for social status decreases economic growth.

Keywords: Social status seeking; Asset allocation; Optimal growth (search for similar items in EconPapers)
JEL-codes: O40 O41 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:93:y:2020:i:c:p:520-525

DOI: 10.1016/j.econmod.2020.09.007

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