SFB 303 Discussion Paper No. A - 492

Author: Corneo, Giacomo, and Olivier Jeanne
Title: Adam Smith's Second Invisible Hand
Abstract: Social incentive mechanisms based on status or social esteem have long been thought to play a crucial role in shaping economic growth. We analyse the influence of the desire of status on economic growth in a model with technological spillovers à la Arrow (1962) and Romer (1986). When status depends on relative wealth, the growth rate of the competitive economy can be socially optimal if the status motive is sufficiently important. The presence of status seeking my even lead to excessive growth under laissez-faire.
Keywords: endogenous growth, optimality of growth, status-seeking behaviour.
JEL-Classification-Number: O40, O41
Creation-Date: September 1995
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