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

Frédéric Gavrel (1) , Thérèse Rebière (2, 3)

1 CREM - Centre de recherche en économie et management
2 LIRSA - Laboratoire interdisciplinaire de recherche en sciences de l'action
3 Institute for the Study of Labor (IZA) Bonn

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.

Mots clés: Inequalities; Efficiency; Social interactions; Getting ahead of the Smiths; Well-being

Domaines: Economies et finances

Frédéric Gavrel, Thérèse Rebière. On the Equilibrium and Welfare Consequences of Getting Ahead of the Smiths. Journal of Public Economic Theory, 2018, 20 (2), pp.257-270. ⟨10.1111/jpet.12261⟩. ⟨halshs-01242504⟩