Econometrica: Jul, 1992, Volume 60, Issue 4

Status, the Distribution of Wealth, Private and Social Attitudes to Risk

https://doi.org/0012-9682(199207)60:4<837:STDOWP>2.0.CO;2-R
p. 837-857

Arthur J. Robson

This paper supposes an individual cares about his/her own wealth not only directly but also via the relative standing that this wealth induces. The implications for risk-taking are investigated in particular. Such a model provides a natural explanation of the "concave-convex-concave" utility described by Friedman and Savage. However, there are a number of key differences between the present model and any model based on own wealth alone. For example, an equilibrium wealth distribution here may have a middle class. Further, the status interaction involves an externality and an equilibrium wealth distribution may be Pareto inefficient.