American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Keeping Up with "The Joneses": Reference-Dependent Choice with Social Comparisons
American Economic Journal: Microeconomics
(pp. 474–500)
Abstract
Keeping up with "The Joneses" matters. This paper examines a model of reference-dependent choice where reference points are determined by social comparisons. An increase in the strength of social comparisons, even by only a few agents, increases consumption and decreases welfare for everyone. Strikingly, a higher marginal cost of consumption can increase welfare. In a labor market, social comparisons with coworkers create a big fish in a small pond effect, inducing incomplete labor market sorting. Further, it is the skilled workers with the weakest social networks who are induced to give up income to become the big fish.Citation
Langtry, Alastair. 2023. "Keeping Up with "The Joneses": Reference-Dependent Choice with Social Comparisons." American Economic Journal: Microeconomics 15 (3): 474–500. DOI: 10.1257/mic.20220088Additional Materials
JEL Classification
- D85 Network Formation and Analysis: Theory
- J22 Time Allocation and Labor Supply
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity
- J61 Geographic Labor Mobility; Immigrant Workers