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: Using nationally representative data on consumption, this article showed that Blacks and Hispanics devote larger shares of their expenditure bundles to visible goods (clothing, jewelry, and cars) than do comparable Whites and that these differences exist among virtually all sub-populations, that they are relatively constant over time, and they are economically large.
Abstract: Using nationally representative data on consumption, we show that Blacks and Hispanics devote larger shares of their expenditure bundles to visible goods (clothing, jewelry, and cars) than do comparable Whites We demonstrate that these differences exist among virtually all sub-populations, that they are relatively constant over time, and that they are economically large While racial differences in utility preference parameters might account for a portion of these consumption differences, we emphasize instead a model of status seeking in which conspicuous consumption is used to reflect a household's economic position relative to a reference group Using merged data on race and state level income, we demonstrate that a key prediction of our model -- that visible consumption should be declining in mean reference group income -- is strongly borne out in the data separately for each racial group Moreover, we show that accounting for differences in reference group income characteristics explains most of the racial difference in visible consumption We conclude with an assessment of the role of conspicuous consumption in explaining lower spending by racial minorities on items likes health and education, as well as their lower rates of wealth accumulation
455 citations
TL;DR: In this article, the authors investigate consumer choice where individuals care not only about the absolute values of consumption, but also about their status, defined as their ordinal rank in the distribution of consumption of one "positional" good.
Abstract: We investigate consumer choice where individuals care not only about the absolute values of consumption, but also about their status. This is defined as their ordinal rank in the distribution of consumption of one "positional" good. In such a situation, the consumer's problem becomes strategic as her utility will depend on the consumption choices of others. In the symmetric Nash equilibrium of the resulting game, each individual spends more on visible consumption than in the absence of a concern for status and has lower utility. Treating status endogenously allows us to analyze how exogenous changes in the distribution of income can affect individual choices. In a more affluent society, individuals spend a higher proportion of their income on the positional good, which leads to a reduction in utility at each income level. In a more equal society those with lower incomes spend more on conspicuous consumption and are worse off. We go on to analyze externality-correcting consumption taxes and subsidies.
443 citations
TL;DR: In this paper, the authors argue that the current system of publication in biomedical research provides a distorted view of the reality of scientific data that are generated in the laboratory and clinic, and that there is a moral imperative to reconsider how scientific data are judged and disseminated.
Abstract: Summary The current system of publication in biomedical research provides a distorted view of the reality of scientific data that are generated in the laboratory and clinic. This system can be studied by applying principles from the field of economics. The “winner’s curse,” a more general statement of publication bias, suggests that the small proportion of results chosen for publication are unrepresentative of scientists’ repeated samplings of the real world. The self-correcting mechanism in science is retarded by the extreme imbalance between the abundance of supply (the output of basic science laboratories and clinical investigations) and the increasingly limited venues for publication (journals with sufficiently high impact). This system would be expected intrinsically to lead to the misallocation of resources. The scarcity of available outlets is artificial, based on the costs of printing in an electronic age and a belief that selectivity is equivalent to quality. Science is subject to great uncertainty: we cannot be confident now which efforts will ultimately yield worthwhile achievements. However, the current system abdicates to a small number of intermediates an authoritative prescience to anticipate a highly unpredictable future. In considering society’s expectations and our own goals as scientists, we believe that there is a moral imperative to reconsider how scientific data are judged and disseminated.
424 citations
TL;DR: In this paper, the effects of exogenous changes in the distribution of income were analyzed using techniques from auction theory, showing that in a richer society, almost all individuals spend more on conspicuous consumption, and individual utility is lower at each income level.
Abstract: If individuals care about their status, defined as their rank in the distribution of consumption of one "positional" good, then the consumer's problem is strategic as her utility depends on the consumption choices of others. In the symmetric Nash equilibrium, each individual spends an inefficiently high amount on the status good. Using techniques from auction theory, we analyze the effects of exogenous changes in the distribution of income. In a richer society, almost all individuals spend more on conspicuous consumption, and individual utility is lower at each income level. In a more equal society, the poor are worse off.
410 citations
TL;DR: The authors show that Blacks and Hispanics devote larger shares of their expenditure bundles to visible goods (clothing, jewelry, and cars) than do comparable Whites and that these differences exist among virtually all subpopulations, are relatively constant over time, and are economically large.
Abstract: Using nationally representative data on consumption, we show that Blacks and Hispanics devote larger shares of their expenditure bundles to visible goods (clothing, jewelry, and cars) than do comparable Whites. These differences exist among virtually all subpopulations, are relatively constant over time, and are economically large. Although racial differences in utility preference parameters might account for a portion of these consumption differences, we emphasize instead a model of status seeking in which conspicuous consumption is used as a costly indicator of a household's economic position. Using merged data on race- and state-level income, we demonstrate that a key prediction of the status-signaling model—that visible consumption should be declining in reference group income—is strongly borne out in the data for each racial group. Moreover, we show that accounting for differences in reference group income characteristics explains most of the racial difference in visible consumption.
406 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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