STATUS, INTERTEMPORAL CHOICE, AND RISK-TAKING

This paper studies endogenous risk-taking by embedding a concern for status (relative consumption) into an otherwise conventional model of economic growth. We prove that if the intertemporal production function is strictly concave, an equilibrium must converge to a unique steady state in which there...

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Veröffentlicht in:Econometrica 2012-07, Vol.80 (4), p.1505-1531
Hauptverfasser: Ray, Debraj, Robson, Arthur
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description This paper studies endogenous risk-taking by embedding a concern for status (relative consumption) into an otherwise conventional model of economic growth. We prove that if the intertemporal production function is strictly concave, an equilibrium must converge to a unique steady state in which there is recurrent endogenous risk-taking. (The role played by concavity is clarified by considering a special case in which the production function is instead convex, in which there is no persistent risk-taking.) The steady state is fully characterized. It displays features that are consistent with the stylized facts that individuals both insure downside risk and gamble over upside risk, and it generates similar patterns of risk-taking and avoidance across environments with quite different overall wealth levels. Endogenous risk-taking here is generally Pareto-inefficient. A concern for status thus implies that persistent and inefficient risk-taking hinders the attainment of full equality.
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source Wiley Online Library Journals Frontfile Complete; JSTOR Mathematics & Statistics; Jstor Complete Legacy
subjects Applications
attitudes to risk
Biology, psychology, social sciences
Case studies
Concavity
Conspicuous consumption
Consumption
Convexity
Determinism
Econometrics
Economic growth
Exact sciences and technology
Financial budgets
growth
Income inequality
Insurance, economics, finance
Mathematics
Pareto efficiency
Probability and statistics
Production functions
Random allocation
Risk
Risk assessment
Sciences and techniques of general use
Statistics
Status
Studies
Utility functions
Wealth
title STATUS, INTERTEMPORAL CHOICE, AND RISK-TAKING
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