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The impact of a reference point determined by social comparison on wealth growth and inequality
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Lou, Youcheng, Strub, Moris S., Li, Duan and Wang, Shouyang (2021) The impact of a reference point determined by social comparison on wealth growth and inequality. Journal of Economic Dynamics and Control, 127 . 104120. doi:10.1016/j.jedc.2021.104120 ISSN 0165-1889.
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Official URL: http://dx.doi.org/10.1016/j.jedc.2021.104120
Abstract
We study the impact of a reference point determined by social comparison on wealth growth and inequality. The reference point of each individual investor contains both personal and social components. Whereas the personal component depends on the investor’s own history of wealth, the social component is determined by the wealth level of other investors in her network. In the benchmark case without social interactions and under the assumption of homogeneous preferences, each investor’s expected wealth grows at a common rate, the wealth gaps widens and the Gini coefficient remains constant. On the other hand, if the reference point is determined solely by social interactions, then it is possible that the network simultaneously experiences high wealth growth and a reduction in inequality. Finally, for the general case where the reference point incorporates both personal and social components and some extensions of the model, we numerically show that increasing the degree of social interactions is beneficial for both increasing wealth growth and reducing inequality.
| Item Type: | Journal Article | ||||||||
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| Divisions: | Faculty of Social Sciences > Warwick Business School | ||||||||
| Journal or Publication Title: | Journal of Economic Dynamics and Control | ||||||||
| Publisher: | Elsevier | ||||||||
| ISSN: | 0165-1889 | ||||||||
| Official Date: | June 2021 | ||||||||
| Dates: |
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| Volume: | 127 | ||||||||
| Article Number: | 104120 | ||||||||
| DOI: | 10.1016/j.jedc.2021.104120 | ||||||||
| Status: | Peer Reviewed | ||||||||
| Publication Status: | Published | ||||||||
| Access rights to Published version: | Restricted or Subscription Access |
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