Do the Joneses make you financially vulnerable?

Richard Barnett, Joydeep Bhattacharya and Helle Bunzel

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: This paper studies a model economy populated with agents of differing incomes that get a utility boost when their consumption keeps up with their neighbors, the proverbial Joneses. The resulting utility function is non-concave. In this setup, participation in a fair consumption lottery has the potential to make some agents ex-ante better off but more financially vulnerable. More people of different incomes join the lottery pool when the ‘kick’ from keeping up increases. Worsening income inequality may increase the number of financially vulnerable people. The analysis offers broad-brushstroke insights into the connection between inequality and financial vulnerability.

Date: 2016-12-01
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Working Paper: Do the Joneses make you financially vulnerable? (2016)
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