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On the Equilibrium and Welfare Consequences of 'Keeping up with the Joneses'
by Frédéric Gavrel, Therese Rebiere
(May 2015)

Abstract:
This paper provides an analysis of the social consequences of people seeking to keep up with the Joneses. All individuals attempt to reach a higher rank than the Joneses, including the Joneses themselves. This attitude gives rise to an equilibrium in which all individuals have equal utilities but unequal (gross) incomes. Due to a rat-race effect, individuals devote too much energy to climbing the social scale in this equilibrium. However, laissez-faire equilibrium is an equal-utility constrained social optimum. Unexpectedly, numerical simulations show that this theory could account for the observed distribution of intermediate wages.
Text: See Discussion Paper No. 9056