SFB 303 Discussion Paper No. A - 525

Author: Corneo, Giacomo, and Olivier Jeanne
Title: Pecuniary Emulation, Inequality and Growth
Abstract: We study a model of endogenous growth in which individuals care about both consumption and the social perception of their relative wealth. The latter determines the social status of individuals. Social perceptions are based upon noisy signals of an individuals's wealth, which prevent a complete separation of types in equilibrium. We show that the steady growth rate of the economy increases with the strength of the status-seeking motive and, contrary to the growth model without status, it is affected by the initial level of wealth inequality. Both too much equality and too much inequality are found to be detrimental to economic growth.
Keywords: endogenous growth, inequality, social status
JEL-Classification-Number: O40, O41
Creation-Date: May 1996
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