Status, Wealth, and Poverty
The Shape of Temptation: Implications for the Economic Lives of the Poor
Abhijit Banerjee & Sendhil Mullainathan
MIT Working Paper, April 2010
"Applying self-control models to poverty requires understanding why self-control problems are particularly severe for the poor. One possibility is that these differences are intrinsic: perhaps lack of health or human capital investments at an early age reduces development of the facility of self-control. We develop a different explanation understood most easily through a simple example. Suppose that donuts that cost $0.25 form a visceral temptation that tempt all people equally. Giving in to this temptation, however, has different budgetary impacts for the rich and the poor. The $0.25 will be far more costly to someone living on $2 a day than to someone living on $30 a day. In other words, the same self-control problem is more consequential for the poor. This example generalizes even if the rich face new temptations so long as the temptations they face do not rise proportionally with income. This may be the case, for example, because some goods satisfy primitive consumption urges: fat, sugar, visceral pleasures. Such urges may (after a certain wealth level) be easily satisfied and more expenditures are unlikely to produce much more pleasure. As a practical matter, donuts can only get so expensive (and even then only gain very little in 'temptingness'). When the availability of temptations do not increase proportionally with income, then the poor will spend a bigger share of their marginal dollar on 'temptation goods'. As a result, the extent of self-control problems declines as individuals get richer...The point of this paper is that this one assumption has a number of striking implications, all of which are relevant to understanding the savings, credit and investment choices made by the poor and how they are treated in asset markets. Our theoretical results are organized around comparing and contrasting the implications of the declining temptation case, alluded to in the previous paragraph, with the case where temptations do not decline...At the heart of this example-- and our formalism-- is the idea that some goods are more tempting than others."
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Omer Moav & Zvika Neeman
Journal of the European Economic Association, April/May 2010, Pages 413-420
Abstract:
We present a model in which individuals' preferences are defined over their consumption, transfers to offspring, and social status associated with income. We show that a separating equilibrium exists where individuals' expenditure on conspicuous consumption is a signal for their unobserved income. In this equilibrium, poor families that climb up the social ladder by the accumulation of wealth engage in conspicuous consumption that prevents them from escaping poverty. Our model may explain why the poor make some choices that do not appear to help them escape poverty.
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Is Anywhere Stuck in a Malthusian Trap?
Charles Kenny
Kyklos, May 2010, Pages 192-205
Abstract:
The key features of the Malthusian model are that (i) income determines population growth, with rising wages increasing survival rates and (ii) there is a vital factor of production (land) which is fixed, implying decreased returns to scale for all other factors. The equilibrium state in such a model is a population living on subsistence incomes. The country-level analysis in this paper suggests that (i) the link between income and population growth is (almost) everywhere broken and (ii) there is little evidence of declining returns to scale because of constraints imposed by land carrying capacity anywhere. Population dynamics are being driven by non-income factors in a manner that is reducing population growth rates everywhere. At the same time, output is increasing everywhere, in a manner inconsistent with significantly declining returns to scale based on land being a vital factor of production.
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Do the "Savage Origins" of Tattoos Cast a Prejudicial Shadow on Contemporary Tattooed Individuals?
Mark Burgess & Louise Clark
Journal of Applied Social Psychology, March 2010, Pages 746-764
Abstract:
We investigated whether increases in tattooing rates and designs have eradicated or altered traditional delinquent tattooing stereotypes. We tested the perceived suitability of tattooed and non-tattooed individuals for 2 different jobs. Affective evaluations mediated judgments of job suitability, with those displaying traditional tattoos being rated as less suitable for employment than those who were not tattooed and those displaying contemporary tattoos. Those with a contemporary tattoo were judged in the same manner as those who were not tattooed (even by observers who neither had a tattoo nor were considering getting one). These results suggest that the savage associations of tattooing continue for some, but suggest that for other tattoo enthusiasts, a new stereotype has emerged reflecting a shift toward respectability.
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Ron Kaniel, Cade Massey & David Robinson
Duke University Working Paper, March 2010
Abstract:
We investigate the impact of the 2008 economic crisis on dispositional optimism. Using a longitudinal study and multiple cohorts, we find a significant decrease in optimism associated with the crisis. The impact was comparable to that previously observed in patients undergoing radiotherapy. In contrast, optimism was robust to more narrow personal events, such as classroom grades and job offers. This pattern has implications for the rationality of generalized expectations and their malleability.
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When Do Matthew Effects Occur?
Matthew Bothner, Richard Haynes, Wonjae Lee & Edward Bishop Smith
Journal of Mathematical Sociology, April 2010, Pages 80-114
Abstract:
What are the boundary conditions of the Matthew Effect? In other words, under what circumstances do initial status differences result in highly skewed reward distributions over the long run, and when, conversely, is the accumulation of status-based advantages constrained? Using a formal model, we investigate the fates of actors in a contest who start off as status-equivalents, produce at different levels of quality, and thus come to occupy distinct locations in a status ordering. We build from a set of equations in which failing to observe cumulative advantage seems implausible and then demonstrate that, despite initial conditions designed to lead inevitably to status monopolization, circumstances still exist that rein in the Matthew Effect. Our results highlight the importance of a single factor governing whether the Matthew Effect operates freely or is circumscribed. This factor is the degree to which status diffuses through social relations. When actors' status levels are strongly influenced by the status levels of those dispensing recognition to them, then eventually the top-ranked actor is nearly matched in status by the lower-ranked actor she endorses. In contrast, when actors' status levels are unaffected by the status levels of those giving them recognition, the top-ranked actor amasses virtually all status available in the system. Our primary contribution is the intuition that elites may unwittingly and paradoxically destroy their cumulative advantage beneath the weight of their endorsements of others. Consequently, we find that the Matthew Effect is curtailed by a process that, at least in some social settings, is a property of status itself-its propensity to diffuse through social relations. Implications for future research are discussed.
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Ingrid Schoon, Helen Cheng, Catharine Gale, David Batty & Ian Deary
Intelligence, January-February 2010, Pages 144-150
Abstract:
We examined the prospective associations between family socio-economic background, childhood intelligence (g) at age 11, educational and occupational attainment, and social attitudes at age 33 in a large (N = 8804), representative sample of the British population born in 1958. Structural equation Modeling identified a latent trait of ‘liberal social attitudes' underlying attitude factors that are antiracist, socially liberal, and in support of gender equality. Another attitude factor-‘political trust'-was relatively independent from the latent attitude trait and has somewhat different pathways in relation to the other variables included in the analysis. There was a direct association between higher g at age 11 and more liberal social attitudes and political trust at age 33. For both men and women the association between g and liberal social attitudes was partly mediated via educational qualifications, and to a much lesser extent via adult occupational attainment. For women the association between g and political trust was partly mediated through both educational qualification and occupational attainment, and for men it was mediated mainly via occupational attainment. Men and women who had higher educational qualifications and higher occupational status tend to be more socially liberal and more trusting of the democratic political system. In terms of socio-economic background, people from less privileged families showed less political trust, but did not differ much in liberal social attitudes from those born into relatively more privileged circumstances. This study shows that social background, cognitive ability, education, and own social status influence perceptions of society.
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Elizabeth Sweet
Social Science & Medicine, forthcoming
Abstract:
This paper examines the interaction of symbolic and material dimensions of social status for African American adolescents and its relationship with blood pressure. Mixed ethnographic methods were used to develop cultural models of social status for urban African American teens in a predominantly African American lower income community west of Chicago. Resting blood pressure and covariate data were collected, as well as standardized measures of perceived stress and social standing. Findings show that, adjusting for covariates, adolescents' consumption of symbolic status goods is significantly associated with their blood pressure, dependent upon parental economic resources. The political economy of status consumption, the underlying contexts of racial and economic inequality, and the implications of these findings for health disparities are discussed.
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Sumit Agarwal, Souphala Chomsisengphet & Chunlin Liu
Journal of Money, Credit and Banking, forthcoming
Abstract:
Using unique data from multiple large-scale randomized marketing trials of pre-approved credit card solicitations, we find that consumers responding to a lender's inferior solicitation offers have poorer credit quality attributes. This finding supports the argument that riskier type borrowers are liquidity or credit constrained and thus have higher reservation loan interest rate. We also find that ex post the credit quality of cardholders with an inferior offer deteriorated more severely relative to those with a superior offer. After controlling for a cardholder's observable risk attributes, demographic characteristics, and adverse economic shocks, we find that cardholders who responded to the inferior credit card offers are significantly more likely to default ex post. Our results provide evidence on the importance of adverse selection effects in the credit card market.
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Does Inequality Harm the Middle Class?
Liliana Winkelmann & Rainer Winkelmann
Kyklos, May 2010, Pages 301-316
Abstract:
The paper provides estimates of the effect of economic inequality on middle class well being in Switzerland. Economic well being is proxied by a person's satisfaction with his/her income. Two inequality indicators are used, one standard (the Gini coefficient of the pre-tax income distribution) and one novel (the number of luxury car registrations per 1000 population). Identification is through cross-sectional variation of these indicators at various levels of spatial aggregation. Results using data from the Swiss Household Panel confirm the existence of a robust inverse relationship between inequality and satisfaction among the middle class.
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Dissatisfied with Life but having A Good Day: Time-Use and Well-Being of the Unemployed
Andreas Knabe, Steffen Rätzel, Ronnie Schöb & Joachim Weimann
Economic Journal, forthcoming
Abstract:
We apply the Day Reconstruction Method to compare unemployed and employed people with respect to their subjective assessment of emotional affects, differences in the composition and duration of activities during the course of a day and their self-reported life satisfaction. Employed persons are more satisfied with their life than the unemployed and report more positive feelings when engaged in similar activities. Weighting these activities with their duration shows, however, that average experienced utility does not differ between the two groups. Although the unemployed feel sadder when engaged in similar activities, they can compensate this by using the time the employed are at work in more enjoyable ways.
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Dennis Garrett & Peter Toumanoff
Journal of Consumer Affairs, Spring 2010, Pages 3-23
Abstract:
Questions have emerged recently about the appropriateness of defining disadvantaged consumers based on their membership in certain demographic categories, such as income, age, education, and race. This study assessed whether these traditional classifications are useful for understanding consumer complaining behavior with the Better Business Bureau. Results of analysis of more than 24,000 consumer complaints filed with a local BBB office during a 13-year period do not provide consistent support for this disadvantaged consumer perspective. Instead, the emerging vulnerable consumer perspective may provide a more promising basis for future research.
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Wealth Transmission and Inequality among Hunter‐Gatherers
Eric Alden Smith, Kim Hill, Frank Marlowe, David Nolin, Polly Wiessner, Michael Gurven, Samuel Bowles, Monique Borgerhoff Mulder, Tom Hertz & Adrian Bell
Current Anthropology, February 2010, Pages 19-34
Abstract:
We report quantitative estimates of intergenerational transmission and population‐wide inequality for wealth measures in a set of hunter‐gatherer populations. Wealth is defined broadly as factors that contribute to individual or household well‐being, ranging from embodied forms, such as weight and hunting success, to material forms, such as household goods, as well as relational wealth in exchange partners. Intergenerational wealth transmission is low to moderate in these populations but is still expected to have measurable influence on an individual's life chances. Wealth inequality (measured with Gini coefficients) is moderate for most wealth types, matching what qualitative ethnographic research has generally indicated (if not the stereotype of hunter‐gatherers as extreme egalitarians). We discuss some plausible mechanisms for these patterns and suggest ways in which future research could resolve questions about the role of wealth in hunter‐gatherer social and economic life.
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The Government Economic Agenda in a Society of Unequally Rational Individuals
Pavel Pelikán
Kyklos, May 2010, Pages 231-255
Abstract:
What economic roles, if any, should government play? This is still an incompletely analyzed issue that different individuals - depending on their ideologies, rent-seeking opportunities, and analytical abilities - may answer very differently. To advance its analysis, this paper recognizes that human rationality (as empirically testable cognitive abilities) is bounded unequally across individuals, and is therefore a unique scarce resource that markets and government allocate in significantly different ways. The results conflict with ideologies of both socialism and classical liberalism, but agree with two puzzles of recent economic history and with ideological compromises in actual economic policies.
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Marx, the French Revolution, and the Spectre of the Bourgeoisie
Henry Heller
Science & Society, April 2010, Pages 184-214
Abstract:
Seeking to deny the bourgeois and capitalist nature of the French Revolution, revisionist scholars have argued that the bourgeoisie did not exist as a class-in-itself or for-itself. The existence of the bourgeoisie as a class-in-itself is increasingly confirmed by recent research. The question whether or not a sense of the bourgeoisie as a class-for-itself developed during the Revolution requires a more complicated response. In The Eighteenth Brumaire of Louis Napoleon, Marx asserted that the consciousness of the revolutionaries was obscured by the rhetoric of classical republicanism. It was only after the Revolution that the French bourgeoisie developed a sense of themselves as a class-for-itself and recognized the Revolution as bourgeois. In fact the upheavals of the Revolution did create a bourgeois consciousness of itself as a class whose strength was based on its growing economic power. But this consciousness was marginalized by the revolutionary leadership because of its potential social divisiveness.