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.
Citations
More filters
TL;DR: In this article, the authors show that the risk premium of a portfolio of artworks is low compared to other risky assets and exploit this insight to explain why art is also a consumption good.
Abstract: ments, art is also a consumption good. Art owners take pleasure in its intrinsic value (e.g., for aesthetic pleasure or as a “storehouse” of an artist’s deftness ), and to the extent that it is a luxury good, they derive additional enjoyment from the signal of wealth that owning a masterpiece transmits. It is the mixture of pecuniary and nonpecuniary payoffs to ownership that makes artworks both compelling to purchase and difficult to value. I exploit this insight to explain why the measured risk premium of a portfolio of artworks is low compared to other risky assets. In a consumption-based pricing model, an asset’s risk premium is a function of the covariance of its returns with agents’ marginal utility of consump tion; agents need to be compensated if the asset pays off in a period of already high utility. As a luxury good, relative art demand is an increasing function of wealth. Therefore, positive shocks to income increase the demand, price, and returns to art in periods of high consumption utility, implying a high risk premium. This intuition is at odds with empirical studies that quantify the average financial returns of paintings relative to more traditional investment vehicles. These studies find that art 1 often underperforms relative to equities and bonds. While there have been
166 citations
TL;DR: The authors examined the determinants of expenditures on weddings and dowries in rural India and found that dowries were affected by competition for scarce men the quality of grooms and social norms and high social status.
Abstract: This study examined the determinants of expenditures on weddings and dowries in rural India. Data were obtained from a survey among a random sample of 800 households in 5 districts in rural Karnataka state in the south open-ended interviews with 100 households from 2 villages in the sample and focus groups. The in-depth interviews revealed that dowries were affected by competition for scarce men the quality of grooms and social norms and high social status. Marriage celebrations signal wealth. Arranging marriage partners and celebration expenses follow different cultural patterns. The theoretical model differentiates between dowry and wedding celebration expenses. Marriages can be from inside or outside the brides village. It is posited that families with high quality husbands have a defined range of celebration costs that cannot be met by families with low quality husbands. The decision to signal social status depends upon whether the groom comes from within or outside the brides village. The brides family spends a higher amount when the groom is not from the same village. Greater brides family wealth reduces the dowry paid. Marriage squeeze raises costs. Average wedding expenses amount to about 3000 rupees; average dowry is about 26000 rupees. Analysis of dowry was generally consistent with theories. Regressions on celebration costs were very consistent with theories. Findings suggest that dowries were largely affected by marriage market factors and match quality while wedding expenses signaled conspicuous consumption and were highest when an exogamous household married a high-quality groom.
150 citations
TL;DR: The authors identify the structure of felicity functions for which the two effects offset each other exactly, which goes some way toward explaining why, while household surveys suggest that relative consumption matters, the consumption behaviour of households has not pointed unambiguously to the presence of relative consumption effects.
Abstract: It is commonly argued that because relative consumption appears to matter to people, they must be involved in a ‘rat race’: people work harder and consume more than they would have were optimum public policies in place. But although consuming more today would improve one's relative consumption now, it would worsen one's relative consumption in the future. In this article we identify the structure of felicity functions for which the two effects offset each other exactly. The finding goes some way toward explaining why, while household surveys suggest that relative consumption matters, the consumption behaviour of households has not pointed unambiguously to the presence of relative consumption effects.
145 citations
TL;DR: In this article, the authors bring together some of the recent empirical and experimental evidence regarding preferences for social status and discuss the economic implications of social status preferences in the context of social media.
Abstract: This chapter brings together some of the recent empirical and experimental evidence regarding preferences for social status. While briefly reviewing evidence from different literatures that is consistent with the existence of preferences for status, we pay special attention to experimental work that attempts to study status directly by inducing it in the lab. Finally, we discuss some economic implications. JEL Codes: C90, D01, D1, D62, Z10, Z13
142 citations
Posted Content•
TL;DR: The authors argue that survey well-being questions are indeed good proxy measures of utility, and resolve the Easterlin paradox by appealing to income comparisons: these can be to others (social comparisons) or to oneself in the past (habituation).
Abstract: There is now a great deal of micro-econometric evidence, both cross-section and panel, showing that income is positively correlated with well-being. Yet the famous Easterlin paradox shows essentially no change in average happiness at the country level, despite spectacular rises in per capita GDP. We argue that survey well-being questions are indeed good proxy measures of utility, and resolve the Easterlin paradox by appealing to income comparisons: these can be to others (social comparisons) or to oneself in the past (habituation). We review a substantial amount of econometric, experimental and neurological literature consistent with comparisons, and then spell out the implications for a wide range of economic issues.
140 citations
References
More filters
Posted Content•
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
1,195 citations
Posted Content•
881 citations
Posted Content•
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.
436 citations
Posted Content•
370 citations
Posted Content•
354 citations