On limiting the market for status signals
TL;DR: In this paper, the impacts of tax policy and benefits on the signalling equilibrium are considered, and the benefits of a Pareto-improving tax policy are discussed. But the authors do not consider the impact of tax on the signaling equilibrium.
About: This article is published in Journal of Public Economics.The article was published on 1994-01-01 and is currently open access. It has received 265 citations till now. The article focuses on the topics: Tax policy & Inefficiency.
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TL;DR: The authors provide a survey of various topics in which questions about taxation feature alongside questions about justice, arguing mainly that taxation is a rather fragmentary domain of inquiry about which it is hard to envisage the development of views about what justice requires with respect to tax policy in general.
Abstract: This article provides a survey of various topics in which questions about taxation feature alongside questions about justice. It seeks to argue mainly that taxation is a rather fragmentary domain of inquiry about which it is hard to envisage the development of views about what justice requires with respect to tax policy in general. Guided by this idea, the article attempts to highlight some aspects of taxation whose connection with justice has been under-explored by philosophers, as well as to acquaint the reader with a sense of the more thoroughly researched areas.
14 citations
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TL;DR: For instance, Nguyen et al. as mentioned in this paper found that concern with rank, even when rankings were not publicly revealed, strongly motivated performance on academic tests and that rank was able to outweigh money as a motivator.
Abstract: Money is the prime incentive in economic models Recent evidence makes it clear that people are also greatly concerned about how their incomes compare with those of others, suggesting that rank may be a strong motivator as well Three experiments in Vietnam assessed whether students in real-world learning environments were concerned with their performance rankings The results showed that concern with rank, even when rankings were not publicly revealed, strongly motivated performance on academic tests Moreover, rank was able to outweigh money as a motivator
14 citations
TL;DR: This paper explored the channels through which income inequality affects conspicuous consumption and found that higher income inequality increases between-household inequality in conspicuous expenditure, and empirically test these hypotheses using US state-level panel data, finding that a one standard deviation increase in the Gini coefficient decreases households' conspicuous expenditure by about 5%.
Abstract: The nature of conspicuous consumption can be understood by exploring the channels through which income inequality affects conspicuous consumption. We develop a simple model where comparison references are determined through social interactions and demonstrate: (1) a negative relationship between income inequality and the average level of conspicuous consumption; and (2) a positive relationship between income inequality and the variance of conspicuous consumption. We empirically test these hypotheses using US state-level panel data. We find that a one-standard-deviation increase in the Gini coefficient decreases households’ conspicuous expenditure by about 5%. We also find that higher income inequality increases between-household inequality in conspicuous expenditure.
14 citations
TL;DR: Gneezy et al. as discussed by the authors presented a field experiment where participants can choose to give up money if they do not follow through with an action, and found significantly higher uptake rates when commitment choices are made public rather than kept private.
Abstract: Previous research often interprets the choice to restrict one’s future opportunity set as evidence for sophisticated time inconsistency. We propose an additional mechanism that may contribute to the demand for commitment technology: the desire to signal to others. We present a field experiment where participants can choose to give up money if they do not follow through with an action. When commitment choices are made public rather than kept private, we find significantly higher uptake rates. Data are available at http://dx.doi.org/10.1287/mnsc.2016.2501. This paper was accepted by Uri Gneezy, behavioral economics.
14 citations
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TL;DR: In this paper, a game theoretical derivation of market demand as a function of the level and distribution of income in the considered economy is provided, showing the potential welfare-improving impact of conspicuous consumption.
Abstract: This contribution provides a game theoretical derivation of market demand as a function of the level and distribution of income in the considered economy: if (i) the price is low, everyone buys the good; if (ii ) the price is high, only the rich buy the good (a status good in a narrow sense). If (iii) the price is located in very high or in middle range, demand collapses. With this, we explain the critical price from which a status good acts as a distinctive signal. In addition, this approach shows the potential welfare-improving impact of conspicuous consumption. Taking these results into account, recommendations by numerous economists to prevent the welfare losses of conspicuous consumption by introducing a luxury tax are highly questionable.
13 citations
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TL;DR: In this paper, the authors model the negative self-characterizations of welfare recipients as a form of social stigma, and use a utility maximization model to predict the impact of welfare programs on the low-income population.
Abstract: Perhaps the most basic assumption of the economic theory of consumer demand is that "more is better than less." Virtually all of the major propositions of consumer theory can, in a certain sense, be derived from the assumption that "goods are good." Interestingly, however, this tenet seems to be violated by the behavior of many individuals in the low-income population, for many turn out to be eligible for a positive welfare benefit but do not in fact join the welfare rolls. For example, it has been estimated that in 1970, only about 69 percent of the families eligible for AFDC (Aid to Families with Dependent Children) participated in the program (see Richard Michel, 1980). The corresponding percentage for AFDC-U, the program for which families with an unemployed male are eligible, was only 43 percent and the participation rate in the Food Stamp Program was only 38 percent (see Maurice McDonald, 1977). This phenomenon has puzzled many investigators because such individuals do not locate on the boundaries of their budget sets. Consequently, most investigators ignore the problem when studying the effects of welfare programs on behavior. In this paper, this seemingly irrational rejection of an increase in income is modeled as resulting from welfare stigma -that is, from disutility arising from participation in a welfare program per se.1 The existence of stigma has been amply documented in the sociological literature (Patrick Horan and Patricia Austin, 1974; Lee Rainwater, 1979), where interviews of recipients have often uncovered feelings of lack of self-respect and " negative self-characterizations" from participation in welfare. Nevertheless, this phenomenon has not been modeled, and many questions consequently remain. When is the disutility of participation strong enough to prevent participation? Shouldn't we expect individuals to weigh the disutility of participation against the potential benefit in their decisions? What is the elasticity of participation with respect to the potential benefit? Also, in a slightly different vein, how are the work disincentives of welfare affected by stigma? These questions have been given scant attention by economists, yet they are crucial for our ability to predict the impact of various welfare programs on the lowincome population. Here these questions are addressed by modeling nonparticipation as a utility-maximizing decision. The model is developed and estimated for the AFDC program.2 The model posits an individual utility function containing not just disposable income, but
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TL;DR: In this paper, the authors examine a variety of empirical evidence that relates to this proposition about the firm's internal wage structure and conclude that the competitive wage structure within a firm must be one in which individual wage differences understate individual differences in marginal products.
Abstract: Status is, like Coase's social costs, a reciprocal phenomenon. Given that one person's gain in status can occur only at the expense of a loss in status for others, and that workers are free to choose their coworkers, it follows that the competitive wage structure within a firm must be one in which individual wage differences understate individual differences in marginal products.' The purpose of this paper is to examine a variety of empirical evidence that relates to this proposition about the firm's internal wage structure. The paper is organized as follows. Section I briefly summarizes the theoretical considerations that govern competitive wage determination when status matters to people and firms are viewed as voluntary associations of workers. Section II then confronts the predictions of Section I by examining pay and productivity schedules for a group of sales occupations for which these schedules are relatively easily observed. Section II also examines the relationship between wages and productivity for a sample of university professors, an occupation in which individual productivity differences are, for a variety of obvious reasons, relatively more difficult to measure. All of the evidence examined is consistent with the hypothesis that, within firms, wage rates vary substantially less than do individual productivity values. Section III discusses additional observations and evidence that bear on this same hypothesis. It suggests that the implicit market for status may strongly influence the ways in which firms are organized to carry out the tasks they perform. Section IV concludes by considering the claim that egalitarian internal wage structures arise because of "equity considerations." It argues that the concept of equity appears very closely linked to the concept of status, and suggests a strategy for assigning monetaty value to the equity considerations that so often dominate public policy decisions.
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