On the Equilibrium and Welfare Consequences of Getting Ahead of the Smiths

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2018

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Frédéric Gavrel et al., « On the Equilibrium and Welfare Consequences of Getting Ahead of the Smiths », HAL-SHS : économie et finance, ID : 10.1111/jpet.12261


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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 wellaccounts for empirical intermediate wage inequality.

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