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On the equilibrium and welfare consequences of getting ahead of the Smiths
Author(s) -
Gavrel Frédéric,
Rebière Thérèse
Publication year - 2018
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/jpet.12261
Subject(s) - economics , welfare , inequality , laissez faire , social welfare , microeconomics , climbing , rank (graph theory) , wage , neoclassical economics , labour economics , market economy , political science , mathematics , law , mathematical analysis , archaeology , combinatorics , history
Abstract This paper provides an analysis of the social consequences of people seeking to get ahead of the Smiths . All individuals attempt to reach a higher rank than the Smiths, including the Smiths themselves. This attitude gives rise to an equilibrium in which all individuals have equal utilities but unequal (gross) incomes. Due to a rat‐race effect, individuals devote too much energy to climbing the social scale. However, laissez‐faire equilibrium is an equal‐utility constrained social optimum. Conversely, a utilitarian social planner would not choose utility equality. Unexpectedly, this social ambition theory fairly well accounts for empirical intermediate wage inequality.