Present-Biased Envy and Inequality

Kirill Borissov (), Mikhail Pakhnin and Ron Wendner
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Kirill Borissov: European University of St. Petersburg (EUSP)

No 2026-01, Graz Economics Papers from University of Graz, Department of Economics

Abstract: We analyze the effects of envy (relative consumption concerns), drawing on evidence that preferences exhibit present bias. We introduce present-biased envy, whereby naive agents compare their consumption to that of others only in the current period, into a Ramsey model in which agents differ in their initial capital endowments. Unlike permanent envy, present-biased envy generates the Matthew effect (the relatively rich become richer while the relatively poor become poorer) and eventually divides society into two classes. The initially wealthiest agents own the entire capital stock and the debts of others, while all other agents are in the maximum borrowing state.

Keywords: Envy; Time inconsistency; Matthew effect; Wealth distribution; Sliding equilibrium; Ramsey conjecture (search for similar items in EconPapers)
JEL-codes: D15 D31 D50 D91 O40 (search for similar items in EconPapers)
Date: 2026-03
New Economics Papers: this item is included in nep-dge
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