Inequality and Mobility Under Social Competition

Alessandro Spiganti () and Francesco Trevisan ()
Additional contact information
Alessandro Spiganti: University of Genoa
Francesco Trevisan: Ca' Foscari University of Venice

No 2025: 09, Working Papers from Department of Economics, University of Venice "Ca' Foscari"

Abstract: We provide a micro-founded dynamic framework to analyse the effects of inequality on social competition, mobility, and welfare. We consider an infinitely repeated Tullock contest in which players with concave utility allocate resources between consumption and costly effort, and the prizes from the current competition determine the players' endowments in the subsequent period. We characterize the unique pure-strategy Markov Perfect Equilibrium, proving that the highly endowed player exerts more effort and has a higher probability of winning. Social competition is maximized at an intermediate level of inequality, whereas utilitarian social welfare is maximized under full equality. Assuming non-increasing absolute risk aversion preferences, we find that greater inequality monotonically reduces social mobility (a pattern consistent with the Great Gatsby curve) and lowers the welfare of the lowly endowed player. By contrast, the welfare of the highly endowed player is non-monotonic when the discount factor is sufficiently high. Thus, being richer in a more unequal society does not necessarily imply higher individual welfare. For example, under logarithmic utility and beta = 2/3, an individual must control over 88% of total resources to strictly prefer inequality over full equality.

Keywords: Contests; Social Competition; Social Mobility; Great Gatsby curve (search for similar items in EconPapers)
JEL-codes: D63 D82 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.unive.it/web/fileadmin/user_upload/dip ... i_trevisan_09_25.pdf First version, anno (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ven:wpaper:2025:09

Access Statistics for this paper

More papers in Working Papers from Department of Economics, University of Venice "Ca' Foscari" Contact information at EDIRC.
Bibliographic data for series maintained by Sassano Sonia ().