Essays on status seeking, bequests and inequality
Harmankaya, Mehmet Fatih
Sağlam, Hüseyin Çağrı
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Social status is the motivating force that governs the behavior of individuals. The tendency to desire higher social status affects household decision making activities. The quest for social status is mostly associated with reference dependent preferences related to economic decisions. This dissertation is made up of three essays on reference dependent preferences related to bequests and inequality. In this scope, this study presents a theoretic framework to analyze the effects of reference dependent preferences on the economy. Thefirst essay analyzes the effects of status quest on bequest distribution and household inequality. Focusing on the relative wealth dimension of social status, we develop a two-period overlapping generations model with heterogeneous agents. It is found that, the quest for social status modi es lifetime decisions and as a consequence, the trajectory of the overall economy. We show that, the bequest motive and the concern for social status not only increase the stationary level of capital, but also enhance the household equality. In the second essay, the implications of assuming different production function for thefinal good is studied in an overlapping generations economy model. In this analysis, social status is identi ed with relative transmissible wealth or bequest. In the long run, the social status concern increase the stationary level of capital. Moreover, inequality in a segregated economy made up of two groups which notably differ in their social status referent, is analyzed. It is shown numerically that, even when the only transmissible factor is wealth, group inequality persists in time. It is found that inequality can decrease in the long-term as long as the poorer group refers the richer group strongly enough. In the third essay, we analyze the role of consumption envy on the resource distribution and household inequality. To do this, a non-overlapping generations renewable resource model is developed. Long run dynamics of the total renewable resource in the economy are analyzed, considering both linear and concave production functions. For the case of linear production function, the fraction of resources devoted to consumption is shown to increase with consumption envy. Thus, steady state level of the available resource in the economy decreases with the effect of consumption envy. Moreover, consumption envy is proven to increase the inequality between households in terms of wealth, consumption and renewable resources.
Reference dependent preferences