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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01 Jan 2005
1 citations
TL;DR: In this paper, the authors present a general model of conspicuous consumption in which two partly visible goods serve as a signal of dual unobserved individual attributes (wealth and wisdom) in addition to a classic Veblen good, a more sophisticated cultural conspicuous-consumption good is introduced.
Abstract: This study presents a general model of conspicuous consumption in which two partly visible goods serve as a signal of dual unobserved individual attributes (wealth and wisdom). In addition to a classic Veblen good, a more sophisticated cultural conspicuous-consumption good is introduced. Agents' ability to use this sophisticated good is mediated by their level of wisdom: smart agents can choose and send a better signal and, just as important, are better able to interpret such signals. Other agents lack the ability to differentiate between high and low signals and, therefore, cannot use the sophisticated good properly.The analysis pertains mainly to two possible extreme equilibria: elite (smart agents who buy the conspicuous-consumption good) and nouveaux riches (rich agents who buy the conspicuous-consumption good). In both equilibria, a select group uses the signal to distinguish itself from others, thereby allowing a social upper class to take shape. We provide existence and uniqueness conditions for such equilibria and show that the introduction of a cultural conspicuous-consumption product may sustain an elite equilibrium that cannot be supported in a classic conspicuous-consumption product environment. We then show that higher levels of inequality and materialism are associated with nouveau riche equilibrium while lower levels of inequality and high relative importance of intellectualism are linked with an elite equilibrium.
1 citations
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TL;DR: This article studied the design of indirect redistributive taxation and of corrective taxation, as well as the formation of equilibrium indirect tax policies via a political process, in the presence of status goods, allowing for the possibility that illegal copies of those goods may be purchased on black markets.
Abstract: This paper studies the design of indirect redistributive taxation and of corrective taxation, as well as the formation of equilibrium indirect tax policies via a political process, in the presence of status goods, allowing for the possibility that illegal copies of those goods may be purchased on black markets (the phenomenon of "piracy"). Heavy taxation of status goods, despite the fact these are typically overconsumed, is not particularly favoured in a social welfare maximisation context, because the tax rate is highly distortionary, due to the presence of piracy. Corrective taxation, aimed at remedying the inefficiencies associated with the consumption externalities generated by the status goods, is made ineffective by piracy. In contrast with the normative results, the median voter model predicts an inefficiently large tax rate on status goods when piracy is widespread. JEL-Code: H230, H260, D720.
1 citations
01 Jan 2011
Abstract: This paper examines the role of a person’s attitude, or mental position with regard to an object, in explaining economic behavior. Observations drawn from research and “real-life” examples form the basis for a utility function that incorporates attitudes. Employing the utility function in a model of decision-making, I use comparative static analysis to examine the effect on economic outcomes of price-driven, and other exogenous, attitude changes. The model’s analysis is then applied to investigate the implications of attitudes for motivating people, fighting terrorism, and fighting the spread of AIDS. In each of these cases, incorporating attitudes substantially improves the ability of economic analysis to explain observed outcomes and provides the basis for developing more effective private strategies and public policies.
1 citations
01 Jan 2018
TL;DR: In this paper, the effects of status concerns on labor supply, wages and production were explored and it was found that social status associated with higher education induces more workers to attend the higher educational path.
Abstract: Based on people's ambition to be viewed as intelligent and the findings on social status and social identity we assume that higher education is associated with high social esteem. We incorporate these findings into people's educational decision and aim to explore the effects of status concerns on labor supply, wages and production. We discover that social status associated with higher education induces more workers to attend the higher educational path. In turn, labor supply of highly educated workers increases, which decreases the respective wage in equilibrium. Moreover, the wage for less educated workers increases in status concerns. There is a unique level of status concerns maximizing the product market's output. Whether production increases or decreases in status concerns depends on whether this level is exceeded or not.
1 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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