Economic choices and status: measuring preferences for income rank

Redzo Mujcic and Paul Frijters

Oxford Economic Papers, 2013, vol. 65, issue 1, 47-73

Abstract: We report on the trade-offs that 1,068 Australian university students make between absolute income and the rank of that income in hypothetical income distributions. We find that income rank matters independently of absolute income, with greater weight given to rank by males, migrants, and individuals from wealthy families. Rank-sensitive individuals require as much as a 200% increase in income to be compensated for going from the top to the bottom of the income distribution. Migrants residing abroad for longer periods of time, and with more affluent job titles, are more likely to compare themselves to others at the destination. A dynamic choice model of compensating incomes predicts the average respondent to need a permanent increase in income of up to $10,000 (70%) when moving from a society with a mean income of $14,000 (e.g., Mexico) to a society with a mean income of $46,000 (e.g., the USA). Copyright 2013 Oxford University Press 2012 All rights reserved, Oxford University Press.

Date: 2013
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Working Paper: Economic Choices and Status: Measuring Preferences for Income Rank (2010)
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