Keeping one step ahead of the joneses: Status, the distribution of wealth, and long run growth

Abstract

Assuming that the utility of each agent depends on its relative wealth position in the society, this chapter constructs an endogenous growth model. It is shown that even if the subjective discount rates differ across agents, there exists a unique balanced growth equilibrium in which each agent owns a positive share of the world wealth. It is also shown that if the agents are identical then an increase in savings incentives always raises the long run growth rate but if they are heterogeneous then an increase in savings incentives may lower the long run growth rate.