The impact of relative wealth concerns on wealth gap and welfare in a noisy rational expectations economy

Huichao Guo and Youcheng Lou

Economics Letters, 2023, vol. 233, issue C

Abstract: We employ a noisy rational expectations equilibrium model to investigate the influence of relative wealth concerns on wealth gap and welfare. Our analysis reveals that the impact is sensitive to the exogeneity or endogeneity of information. When information is exogenous, the average wealth gap between high-precision and low-precision investors is either decreasing or, initially decreases and eventually increases in the degree of relative wealth concerns. Moreover, we identify two or three potential patterns regarding the monotonicity pattern of the welfare of low-precision and high-precision investors. However, when information becomes endogenous, the average wealth gap and welfare decrease.

Keywords: Relative wealth concerns; Wealth gap; Welfare; Noisy rational expectations equilibrium (search for similar items in EconPapers)
JEL-codes: D82 G14 G41 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:233:y:2023:i:c:s0165176523004019

DOI: 10.1016/j.econlet.2023.111376

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