Intergenerational Mobility and Reference Groups

Martin Leites and Xavi Ramos

No 19-23, Documentos de Trabajo (working papers) from Instituto de Economía - IECON

Abstract: We model the role of reference groups as a mechanism for inequality persistence across generations. Reference group theory suggests that culturally shaped processes alter individuals'ambition. As a result, relative deprivatione effects may discourage (encourage) low-background individuals from making adequate mobility-enhancing investments.The model confirmes that reference groups could be an inequality transmission mechanism across generations,and shows that both the size and direction of this effects depends on,(a)the composition of the reference group,(b)the intensity and functional form of income comparisons,(c)the ex-ante inequality between agents from different social origins and the reward of effort, and(d)the information about their peers and past income mobility. Our model is more general than previous models and its findings are in stark contrast to models based upon self-fulfilling beliefs and fatalistic predictions. Finally,our model explicitly links two strands of the literature: Reference group theory and aspiration failure models.

Keywords: Reference group; prospect theory; intergenerational mobility; relative deprivation; effort; Bayesian learning (search for similar items in EconPapers)
JEL-codes: A13 D63 J62 Z13 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2019-11
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https://hdl.handle.net/20.500.12008/23040

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Persistent link: https://EconPapers.repec.org/RePEc:ulr:wpaper:dt-23-19

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