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The Quest for Status and Endogenous Labor Supply. The Relative Wealth Framework

Walter Fisher and Franz X. Hof
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Franz X. Hof: Institute for Mathematical Methods in Economics, Research Unit Economics, Vienna University of Technology

No 181, Economics Series from Institute for Advanced Studies

Abstract: This paper introduces the quest for status into the Ramsey model with endogenous labor supply. We focus our attention on relative wealth preferences. In contrast to relative consumption preferences, they allow for the possibility that agents work too little in the long run, while under both specifications the steady-state levels of consumption and the stock of physical capital exceed their socially optimal counterparts. The initial phase of transitional dynamics is unambiguously characterized by under-consumption and excessive work effort. The social optimum can be replicated by taxing capital income, where the optimal tax rate increases as physical capital accumulates.

Keywords: Status; Relative consumption; Relative wealth; Endogenous labor supply (search for similar items in EconPapers)
JEL-codes: D62 D91 E21 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2005-11
New Economics Papers: this item is included in nep-mac
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http://www.ihs.ac.at/publications/eco/es-181.pdf First version, 2005 (application/pdf)

Related works:
Journal Article: The quest for status and endogenous labor supply: the relative wealth framework (2008) Downloads
Working Paper: The Quest for Status and Endogenous Labor Supply: The Relative Wealth Framework (2006) Downloads
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