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Keeping up with Joneses Motive and Family Altruism in a Model of Economic Growth

Student: Markova Tatiana

Supervisor: Aleksei Minabutdinov

Faculty: St.Petersburg School of Economics and Management

Educational Programme: Economics (Bachelor)

Year of Graduation: 2017

At present time, an interest in consumption externalities is renewed in dynamic economic analyses. The overall level of satisfaction derived from a given level of consumption depends not only on the consumption level itself, but also on how it compares to the consumption of other members of society. Jealousy or keeping up with Joneses motive is one of the fundamental motives in individual`s decision making.The main aim is to analyze the influence of keeping up with Joneses motive on economic growth. We introduce overlapping generation model with heterogeneous agents with consumption level derived by relative consumption in society and family altruism. Our model complements the theoretical body of literature that explores the relationship between intergenerational transfers and wealth inequality. We obtain several interesting results based on a number of analytical propositions. Balance growth path depends on mutual relationship of three parameters derived from the model. We show that interdependent preferences may provide an equalizing effect with the unique steady-state equilibrium. If altruistic motive is sufficiently strong, everyone will leave a bequest. The opposite situation with zero bequests is also possible. Otherwise, the aggregate dynamics depends on initial wealth distribution. In that case with strong keeping up with Joneses motive only the wealthiest individuals leave a bequest, and thus the society divides into two classes: the rich and the poor. Moreover, an initial share of wealthiest individuals may also change equilibrium paths even if other model parameters remain unchanged.

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