Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/128320 
Year of Publication: 
2016
Series/Report no.: 
ECON WPS No. 01/2016
Publisher: 
Vienna University of Technology, Institute of Statistics and Mathematical Methods in Economics, Research Group Economics, Vienna
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.
Subjects: 
status concerns
relative wealth
technological progress
long-run economic growth
social optimality
JEL: 
D31
D62
O10
O30
Document Type: 
Working Paper

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