Lombardo, Vincenzo (2012): Social inclusion and the emergence of development traps.
Download (907kB) | Preview
This paper argues that individuals concerns for relative position contribute to the emergence of development traps. It demonstrates that changes in the mean and the distribution of income qualitatively modify individual’s reference group by affecting the magnitude of the reference standard. Over time, this effect influences the dynamical transition of within dynasties incomes and drives the emergence of development traps. In particular, an increase in mean income and a reduction of inequality cause an increase in the reference standard, inducing, in the long-run, the transition from a Solovian-type stage to a development traps regime as agents need to sacrifice relatively more resources in order to keep up with the reference group.
|Item Type:||MPRA Paper|
|Original Title:||Social inclusion and the emergence of development traps|
|Keywords:||Social inclusion, keeping up with the Joneses, development traps, unified growth theory|
|Subjects:||D - Microeconomics > D3 - Distribution > D31 - Personal Income, Wealth, and Their Distributions
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O15 - Human Resources; Human Development; Income Distribution; Migration
D - Microeconomics > D9 - Intertemporal Choice and Growth > D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General
|Depositing User:||Vincenzo Lombardo|
|Date Deposited:||20. Feb 2012 01:35|
|Last Modified:||19. Feb 2013 09:31|
Abel, Andrew B., “Asset prices under habit formation and catching up with the joneses,” The American Economic Review: Papers & Proceedings, May 1990, 80 (2), 38–42.
Alpizar, Francisco, Carlsson, Fredrik, and Johansson-Stenman, Olof, “How much do we care about absolute versus relative income and consumption?” Journal of Economic Behavior and Organization, 2005, 56, 405–421.
Alvarez-Cuadrado, Francisco, Monteiro, Goncalo, and Turnovsky, Stephen J., “Habit formation, catching up with the Joneses, and economic growth,” Journal of Economic Growth, 2004, 9, 47–80.
Andreoni, James, “Giving with impure altruism: applications to charity and Ricardian equiva- lence,” The Journal of Political Economy, December 1989, 97 (6), 1447–1458.
Artige, Lionel, Camacho, Carmen, and De La Croix, David, “Wealth breeds decline: Re- versals of leadership and consumption habits,” Journal of Economic Growth, 2004, 9, 423–449.
Banerjee, Abhijit V. and Duflo, Esther, “The economic lives of the poor,” The Journal of Economic Perspectives, Winter 2007, 21 (1), 141–167.
Banerjee, Abhijit V. and Newman, Andrew F., “Occupational choice and the process of development,” The Journal of Political Economy, April 1993, 101 (2), 274–298.
Barnett, Richard C., Bhattacharya, Joydeep, and Bunzel, Helle, “Keeping up with Joneses and income inequality,” Economic Theory, 2010, 45, 469–496.
Blanchflower, David G. and Oswald, Andrew J., “Well-being over time in Britain and the USA,” Journal of Public Economics, 2004, 88, 1359–1386.
Bloch, Francis, Rao, Vijayendra, and Desai, Sonalde, “Wedding celebrations as conspicuous consumption: Signaling social status in rural India,” The Journal of Human Resources, Summer 2004, 39 (3), 675–695.
Bloom, David E., Canning, David, and Sevilla, Jaypee, “Geography and poverty traps,” Journal of Economic Growth, 2003, 8, 355–378.
Calvò-Armengol, Antoni and Jackson, Matthew O., “The effects of social networks on employment and inequality,” The American Economic Review, June 2004, 94 (3), 426–454.
Calvò-Armengol, Antoni, Patacchini, Eleonora, and Zenou, Yves, “Peer effects and social networks in education,” Review of Economic Studies, October 2009, 76 (4), 1239–1267.
Card, David, Mas, Alexandre, Moretti, Enrico, and Saez, Emmanuel, “Inequality at work: the effect of peer salaries on job satisfaction,” The American Economic Review, 2011, forthcoming.
Carroll, Christopher D., Overland, Jody, and Weil, David N., “Comparison utility in a growth model,” Journal of Economic Growth, 1997, 2, 339–367.
Clark, Andrew E., Frijters, Paul, and Shields, Michael A., “Relative income, happiness, and utility: an explanation for the Easterlin paradox and other puzzles,” Journal of Economic Literature, 2008, 46 (1), 95–144.
Clark, Andrew E. and Oswald, Andrew J., “Satisfaction and comparison income,” Journal of Public Economics, 1996, 61, 359–381.
Clark, Andrew E. and Senik, Claudia, “Who compares to whom? The anatomy of income comparisons in Europe,” The Economic Journal, May 2010, 120, 573–594.
Cole, Harold L., Mailath, George J., and Postlewaite, Andrew, “Social norms, savings behavior, and growth,” The Journal of Political Economy, December 1992, 100 (6), 1092–1125.
Cooper, Ben, Garc ́ıa-Pen ̃alosa, Cecilia, and Funk, Peter, “Status effects and negative utility growth,” The Economic Journal, July 2001, 111 (473), 642–665.
Corneo, Giacomo and Jeanne, Olivier, “On relative wealth effects and the optimality of growth,” Economics Letters, 1997, 54, 87–92.
Corneo, Giacomo and Jeanne, Olivier, “Status, the distribution of wealth, and growth,” Scandinavian Journal of Economics, 2001, 103 (2), 283–293.
Duesenberry, James S., Income, Savings, and the Theory of Consumer Behavioral, Cambridge, Massachusetts: Harvard University Press, 1949.
Dupor, Bill and Liu, Wen-Fang, “Jealousy and equilibrium overconsumption,” The American Economic Review, March 2003, 93 (1), 423–428.
Durlauf, Steven N. and Johnson, Paul A., “Multiple regimes and cross-country growth behaviour,” Journal of Applied Econometrics, 1995, 10, 365–284.
Dynan, Karen E. and Ravina, Enrichetta, “Increasing income inequality, external habits, and self-reported happiness,” The American Economic Review, May 2007, 97 (2), 226–231.
Ferrer-í-Carbonell, Ada, “Income and well-being: an empirical analysis of the comparison income effect,” Journal of Public Economics, 2005, 89, 997–1019.
Fiaschi, Davide and Lavezzi, Andrea Mario, “Distribution dynamics and nonlinear growth,” Journal of Economic Growth, 2003, 8, 379–401.
Fiaschi, Davide and Lavezzi, Andrea Mario, “Nonlinear economic growth: Some theory and cross-country evidence,” Journal of Development Economics, September 2007, 84 (1), 271–290.
Frank, Robert H., “The demand for unobservable and other nonpositional goods,” The American Economic Review, March 1985, 75 (1), 101–116.
Frank, Robert H., The Darwin Economy: Liberty, Competition, and the Common Good, Princeton: Princeton University Press, 2011.
Futagami, Koichi and Shibata, Akihisa, “Keeping one step ahead of the Joneses:status, the distribution of wealth, and long run growth,” Journal of Economic Behavior and Organization, 1998, 36, 109–126.
Galí, Jordi, “Keeping up with the Joneses: Consumption externalities, portfolio choice, and asset prices,” Journal of Money, Credit and Banking, February 1994, 26 (1), 1–8.
Galor, Oded, “The 2008 Lawrence R. Klein Lecture - Comparative economic development: insights from Unified Growth Theory,” International Economic Review, 2010, 51 (1), 1–44.
Galor, Oded and Moav, Omer, “Natural selection and the origin of economic growth,” The Quarterly Journal of Economics, November 2002, 117 (4), 1133–1191.
Galor, Oded and Tsiddon, Daniel, “Technological progress, mobility, and economic growth,” The American Economic Review, June 1997, 87 (3), 363–382.
Galor, Oded and Weil, David N., “Population, technology, and growth: from Malthusian stagnation to the demographic transition and beyond,” The American Economic Review, September 2000, 90 (4), 806–828.
Galor, Oded and Zeira, Joseph, “Income distribution and macroeconomics,” Review of Economic Studies, January 1993, 60 (1), 35–52.
Garcìa-Peñalosa, Cecilia and Turnovsky, Stephen J., “Consumption externalities: a representative consumer model when agents are heterogeneous,” Economic Theory, 2008, 37, 439–467.
Ghiglino, Christian and Goyal, Sanjeev, “Keeping up with the Neighbors: social interaction in a market economy,” Journal of the European Economic Association, January 2010, 8 (1), 90–119.
Heffetz, Ori, “A test of conspicuous consumption: Visibility and income elasticities,” Review of Economic Studies, November 2011, 93 (4), 1101–1117.
Heffetz, Ori and Frank, Robert, “Preferences for status,” in Jess Benhabib, Alberto Bisin, and Matt Jackson, eds., “Handbook for Social Economics,” vol. 1A, New York and Oxford: Elsevier Science, North-Holland, 2010.
Hirsch, Fred, Social limits to growth, Cambridge, Massachusetts: Harvard University Press, 1976.
Hopkins, Ed and Kornienko, Tatiana, “Running to keep in the same place: consumer choice as a game of status,” The American Economic Review, September 2004, 94 (4), 1085–1107.
Hopkins, Ed and Kornienko, Tatiana, “Inequality and growth in the presence of competition for status,” Economics Letters, 2006, 93, 291–296.
Ioannides, Yannis M. and Loury, Linda Datcher, “Job information networks, neighborhood effects, and inequality,” Journal of Economic Literature, December 2004, XLII (4), 1056–1093.
Johansson-Stenman, Olof, Carlsson, Fredrik, and Daruvala, Dinky, “Measuring future grandparents’ preferences for equality and relative standing,” The Economic Journal, April 2002, 112 (479), 362–383.
Kawamoto, Koichi, “Status-seeking behavior, the evolution of income inequality, and growth,” Economic Theory, 2009, 39, 269–289.
Lewis, G. W. and Ulph, D. T., “Poverty, inequality and welfare,” The Economic Journal, 1988, 98 (No. 390, Supplement: Conference Papers), 117–131.
Liu, Wen-Fang and Turnovsky, Stephen J., “Consumption externalities, production externalities, and long-run macroeconomic efficiency,” Journal of Public Economics, 2005, 89, 1097–1129.
Lombardo, Vincenzo, “Poor’s behaviour and inequality traps: the role of human capital,” , November 2008, MPRA Paper No. 14511.
Long, Ngo Van and Shimomura, Koji, “Relative wealth, status-seeking, and catching-up,” Journal of Economic Behavior and Organization, 2004, 53, 529–542.
Luttmer, Erzo F. P., “Neighbors as negatives: relative earnings and well-being,” The Quarterly Journal of Economics, August 2005, 120 (3), 963–1002.
Mani, Anandi, “Income distribution and the demand constraint,” Journal of Economic Growth, June 2001, 6, 107–133.
Moav, Omer, “Income distribution and macroeconomics: the persistence of inequality in a convex technology framework,” Economics Letters, 2002, 75, 187–192.
Moav, Omer and Neeman, Zvika, “Status and poverty,” Journal of the European Economic Association, April/May 2010, 8 (2-3), 413–420.
OECD, Growing Unequal?, Paris: OECD Publishing, 2008.
Rao, Vijayendra, “Celebrations as social investments: festivals expenditures, unit price variation and social status in rural India,” The Journal of Development Studies, October 2001a, 38 (1), 71–97.
Rao, Vijayendra, “Poverty and public celebrations in rural India,” Annals of the American Academy of Political and Social Science, 2001b, 563 (1), 85–103.
Ravallion, Martin and Chen, Shaohua, “Weakly relative poverty,” The Review of Economics and Statistics, 2011, 93, 1251–1261.
Ravallion, Martin and Lokshin, Michael, “Who cares about relative deprivation?” Journal of Economic Behavior and Organization, 2010, 73 (2), 171–185.
Ravina, Enrichetta, “Habit persistence and Keeping up with the Joneses: evidence from micro data,” , November 2007, working paper, Columbia Business School.
Rege, Mari, “Why do people care about social status?” Journal of Economic Behavior and Organization, May 2008, 66 (2), 233–242.
Robson, Arthur J., “Status, the distribution of wealth, private and social attitudes to risk,” Econometrica, July 1992, 60 (4), 837–857.
Runciman, Walter G., Relative deprivation and social justice, London: Routledge & Kegan Paul, 1966.
Sen, Amartya, “Poor, relatively speaking,” Oxford Economic Papers, July 1983, 35 (2), 153–169. Senik, Claudia, “Direct evidence on income comparisons and their welfare effects,” Journal of Economic Behavior and Organization, 2009, 72, 408–424.
Solnick, Sara J. and Hemenway, David, “Is more always better? a survey on positional concern,” Journal of Economic Behavior and Organization, 1998, 37, 373–383.
Solnick, Sara J. and Hemenway, David, “Are positional concerns stronger in some domains than in others?” The American Economic Review: Papers & Proceedings, May 2005, 95 (2), 147–151.
Veblen, Thorstein, The Theory of Leisure Class, New York: Macmillan, 1899.