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The quest for status and R&D-based growth

Franz X. Hof and Klaus Prettner

No 01/2016, ECON WPS - Working Papers in Economic Theory and Policy from TU Wien, Institute of Statistics and Mathematical Methods in Economics, Economics Research Unit

Abstract: We analyze the impact of status preferences on technological progress and long-run economic growth. For this purpose, we extend the standard relative wealth approach by allowing the two components of the representative household's wealth, physical capital and shares, to differ with respect to their status relevance. Relative wealth preferences imply that the effective rate of return of saving in the form of a particular asset is the sum of its market rate of return and its status-related extra return. It is shown that the status relevance of shares is of crucial importance: First, an increase in the intensity of the quest for status raises the steady-state economic growth rate only if the status-related extra return of shares is strictly positive. Second, for any given degree of status consciousness, the long-run economic growth rate depends positively on the relative status relevance of shares. Third, while in the standard model the decentralized long-run economic growth rate is less than its socially optimal counterpart, the wealth externalities in our model counterbalance this distortion to some extent provided that shares matter for status.

Keywords: status concerns; relative wealth; technological progress; long-run economic growth; social optimality (search for similar items in EconPapers)
JEL-codes: D31 D62 O10 O30 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cse, nep-fdg, nep-gro and nep-ino
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: The quest for status and R&D-based growth (2019) Downloads
Working Paper: The quest for status and R&D-based growth (2016) Downloads
Working Paper: The Quest for Status and R&D-based Growth (2016) Downloads
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