On the Equilibrium and Welfare Consequences of Keeping Up With The Joneses

Frédéric Gavrel (1) , Thérèse Rebière (2)

1 CREM - Centre de recherche en économie et management
2 IZA Bonn

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.

Mots clés: Keeping up with the Joneses; Social interactions; Well-being; Inequalities; Efficiency JEL Classification numbers: D3; D6; D8; I3; Z1

Domaines: Economies et finances

Frédéric Gavrel, Thérèse Rebière. On the Equilibrium and Welfare Consequences of Keeping Up With The Joneses. 2015. ⟨halshs-01158406⟩