STATUS SEEKING AND SOCIAL WELFARE:

IS THERE VIRTUE IN VANITY?

William K. Jaeger

CLIFFORD DALLON

BEHAVIORAL ECONOMICS PROFESSORS: TOTH / HAMORI

PRESENTATION PLAN
I. INTRODUCTION & AIMS II. OVERVIEW OF RECENT LITERATURE III. MODEL OF STATUS
- SOURCES OF STATUS. - A MODEL OF INDIVIDUAL ALLOCATION. - EXTERNAL EFFECTS OF STATUS SEEKING. IV. CORRECTIVE INTERVENTIONS - INFORMATION DISSEMINATION. - RESTRICTIONS ON STATUS-RELATED GOODS. - PROVISION OF STATUS-RELATED GOODS AND AMENITIES. - INCREASING THE DURABILITY OF STATUS REWARDS. - ALTERING STATUS WEIGHTS DIRECTLY. V. STATUS AND MORALITY VI. CONCLUDING COMMENTS
CLIFFORD DALLON

BEHAVIORAL ECONOMICS
PROFESSOR: TOTH / HAMORI

I. INTRODUCTION & AIMS

-OBJECTIVES: SOCIAL STATUS REWARDS CAN AFFECT SOCIAL WELFARE. - METHODS: A RATIONAL CHOICE APPROACH. - RESULTS: IN MARKET FAILURE - INTERVENTION.

- CONCLUSIONS: SOCIAL MECHANISMS CAN MAKE INCENTIVES MORE EFFECTIVE.

For to what purpose is all the toil and bustle of this world? To be
observed, to be attended to, to be taken notice of It is the vanity, not the ease, or the pleasure, which interests us. - Adam Smith, The Theory of Moral Sentiment

CLIFFORD DALLON

BEHAVIORAL ECONOMICS
PROFESSOR: TOTH / HAMORI

I. INTRODUCTION & AIMS

I. SOCIAL STATUS HAS BEEN USED AS A TOOL TO MOVE SOCIETY. - VEBLEN (1899)CONSPICUOUS CONSUMPTION - FRED HIRSCH: (1976)POSITIONAL GOOD (PRODUCTS, SERVICES, JOBS AND SOCIAL RELATIONSHIPS). - ROBERT FRANK: (1985) SUGGESTED THAT DURABLE GOODS = STATUS, NON-OBSERVABLE = PROVISIONAL.

- DUESENBERRY: AVERAGE PROPENSITY TO CONSUME FALLS AS INCOME RISES.

CLIFFORD DALLON

BEHAVIORAL ECONOMICS
PROFESSOR: TOTH / HAMORI

I. INTRODUCTION & AIMS

I. SOCIAL STATUS HAS BEEN USED AS A TOOL TO MOVE SOCIETY.

- ARROW (1971), SUGGESTED SOCIAL NORMS COULD FUNCTION AS INTERVENTIONS, CORRECTING MARKET FAILURES. - THE CURRENT RESEARCH LOOKS INTO HOW MARKET FAILURES CAN BE CORRECTED.
- WHAT POSSIBLE MECHANISMS CAN BE USED?

CLIFFORD DALLON

BEHAVIORAL ECONOMICS
PROFESSOR: TOTH / HAMORI

II. OVERVIEW OF RECENT LITERATURE

I. RECENT CONTRIBUTIONS DEAL WITH: - EXISTENCE FOR PREFERENCE AND SOCIAL STATUS FUNCTION IN EQUILIBRIUM TWO APPROACHES. - ONE: STATUS CONCERN DO NOT DIRECTLY ENTER UTILITY FUNCTION. - A SECOND APPROACH: - STATUS IN INDIVIDUALS DIRECT PREFERENCES. - FROM A LONG-TERM EVOLUTIONARY PROCESS. - HIERARCHY HAS VALUE IN SELECTION PROCESS. - NORMS = STATUS ( NON = DEVIANTS).

- REWARDS CAN REDUCE MARKET FAILURES HAS BEEN

SUGGESTED IN RELATION TO THE NEW GROWTH THEORY.
CLIFFORD DALLON

BEHAVIORAL ECONOMICS
PROFESSOR: TOTH / HAMORI

III. MODEL OF STATUS

I. SOURCES OF STATUS: - CONSUMPTION OF POSITIONAL GOODS, PHYSICAL TRAITS, BEHAVIORS, AND ASSOCIATIONS. - SOME ARE LINKED TO FINANCIAL SUCCESS.

- SOME COMMUNITIES HAVE VARIED VALUE BASES. - PERSONAL TRAITS. - ASSOCIATIONS. - FRIENDS.

CLIFFORD DALLON

BEHAVIORAL ECONOMICS
PROFESSOR: TOTH / HAMORI

III. MODEL OF STATUS

II. MODEL OF INDIVIDUAL ALLOCATION
- INDIVIDUAL WITHIN A REFERENCE GROUP.

- THE GROUP WILL DETERMINE WHAT ARE STATUS ENHANCING. - UTILITY FUNCTION AND ONES OWN ATTRIBUTES.
-GENERAL CONCLUSIONS: - STATUS ENHANCING, UTILITY PROVIDING. - NEGATIVE UTILITY PROVIDING GOODS IF THEY PROVIDE STATUS. (WEIGHTLIFTING, TANNING SALONS) - PEOPLE WILL FOLLOW WHERE TIME, TECHNOLOGY, AND NATURAL ABILITY SUITS BEST.

CLIFFORD DALLON

BEHAVIORAL ECONOMICS
PROFESSOR: TOTH / HAMORI

III. MODEL OF STATUS

III. EXTERNAL EFFECTS OF STATUS SEEKING. - 2 KINDS OF MARKET FAILURES: 1. ARMS RACE. 2. INDIVIDUALS WILL NOT HEED THE EFFECTS ON PUBLIC GOODS OF THEIR ACTIONS.

- THE OUTCOME IS IMPACT MAY BE + / - IMPORTANTLY, INCENTIVES CAN BE CREATED. - THIS IDEA WAS PROPOSED ALSO BY ARROW IN 1971. - ENFORCING OR IMPLEMENTING THESE FACE CHALLENGES.

CLIFFORD DALLON

BEHAVIORAL ECONOMICS
PROFESSOR: TOTH / HAMORI

IV. CORRECTIVE INTERVENTIONS

I. THE POSSIBILITY FOR CORRECTIVE MEASURES AND CONCERNS EXIST. - WHAT METHODS WILL WORK BEST? - SPORTS HAVE BEEN TOOLS WHICH ARE TRANSPARENT. - THERE ARE LIMITATION TOOLS ON SPORTS.

- STATUS IN SPORTS APPEARS MORE TIED TO SOCIAL BENEFITS THAN STRENGTH.

- PRODUCE ARTIFICIAL COMPETITION.

- THESE ELEMENTS MAY BE APPLIED TO NON-SPORTS SETTINGS.

CLIFFORD DALLON

BEHAVIORAL ECONOMICS
PROFESSOR: TOTH / HAMORI

IV. CORRECTIVE INTERVENTIONS

II. INFORMATION DISSEMATION - FRANK (1985) STATED VISIBLE GOODS SERVE MORE EFFECTIVELY AT ENHANCING STATUS THAN NON OBSERVABLE. - DONATIONS. - THIS LEADS TO THE QUESTION OF WHEN TO INTERVENE? - GENERALLY, WHEN THE COST IS EQUAL TO THAT OF THE SOCIAL GAINS. - SUBSIDIES ON INFORMATION COSTS OF STATUS RELATED GOODS. - TEACHER AWARDS, RECOGNITION DINNERS, ETC.

CLIFFORD DALLON

BEHAVIORAL ECONOMICS
PROFESSOR: TOTH / HAMORI

IV. CORRECTIVE INTERVENTIONS

III. RESTRICTIONS ON STATUS RELATED GOODS. - ANOTHER INTERVENTION WILL BE WHEN EXTERNALITY IS NEGATIVE. - EXAMPLES IN SPORTS PERFORMANCE ENHANCING DRUGS. - WHEN TO INTERVENE? - NET EFFECTS ON PRIVATE AND PUBLIC SOURCES OF UTILITY TO THE COSTS OF THE INTERVENTION. - EXAMPLES ARE SCHOOL UNIFORMS WHICH DISCOURAGE COMPARISONS BETWEEN YOUTHS.

CLIFFORD DALLON

BEHAVIORAL ECONOMICS
PROFESSOR: TOTH / HAMORI

IV. CORRECTIVE INTERVENTIONS

IV. PROVISION OF STATUS-RELATED GOODS AND AMENITIES. - FOSTERING THE STATUS PROVISION OF GOODS WITH POSITIVE EXTERNALITIES. - CREATING SPORTS FIELDS, POOLS, ACADEMIC VALUES AND PRESTIGE.

- DIVERSION, WHEN THE GOODS HAVE NEGATIVE EXTERNALITIES.

- DUE TO SITUATIONS WHERE INNER CITY YOUTH PARTOOK IN PARTICULARLY HIGH COST ACTIVITIES TO ACHIEVE PRESTIGE.

- POLICY MAKERS HAVE TRIED TO DISCOURAGE AND

ENCOURAGE.

CLIFFORD DALLON

BEHAVIORAL ECONOMICS
PROFESSOR: TOTH / HAMORI

IV. CORRECTIVE INTERVENTIONS

V. INCREASING THE DURABILITY OF STATUS REWARDS.
- INTERVENTIONS WITH PROLONGED EFFECTS CAN BE PRODUCE RESULTS BETTER THAN THOSE WITH SHORTER LIVES OF STATUS PRODUCTION. - TROPHIES, AWARDS AND OTHER FORMS OF RECOGNITION. - LIFE HONOR AWARDED TO WAR VETERANS.

CLIFFORD DALLON

BEHAVIORAL ECONOMICS
PROFESSOR: TOTH / HAMORI

IV. CORRECTIVE INTERVENTIONS

VI. ALTERING STATUS WEIGHTS DIRECTLY. - EXAMPLES INCLUDE APPLYING STIGMAS TO NEGATIVE EXTERNALITY PRODUCING ACTIVITIES. SMOKING. - WHEN SHOULD WE IMPLEMENT THIS? - NET EFFECT ON EXTERNALITIES, PLUS THE CHANGES IN MARGINAL UTILITIES FROM CONSUMPTION DIRECTLY, EXCEED THE COST OF THE INTERVENTION. - THUS, MORAL BEHAVIOR SHOULD BE RESPECTED.

CLIFFORD DALLON

BEHAVIORAL ECONOMICS
PROFESSOR: TOTH / HAMORI

V. STATUS AND MORALITY

I. A STATUS SYMBOL CAN BE APPLIED TO THE ENACTMENT OF MORAL BEHAVIOR. THEREFORE, INDIVIDUALS WILL PURSUE SUCH ACTION. - EVEN IF THE INDIVIDUAL WILL NOT RECEIVE MAXIMUM BENEFIT, THE GROUP SHOULD. - IF MORAL RULES CAN ASSIST SOCIAL WELFARE.

- THIS REINFORCES ARROWS CLAIM.

CLIFFORD DALLON

BEHAVIORAL ECONOMICS
PROFESSOR: TOTH / HAMORI

V. STATUS AND MORALITY

II. IF IMPLEMENTED EFFECTIVELY, MORAL RULES WILL FUNCTION AS A TOOL.

- INDIVIDUALS MAY BE ACTING IN THEIR OWN INTEREST, BUT WILL ALSO BE RAISING THE OVERALL WELL-BEING.
- POSITIONAL COMPETITION, WOULD THEN PROMOTE, RATHER THAN DEGRADE THE SOCIAL WELFARE.

VS

CLIFFORD DALLON

BEHAVIORAL ECONOMICS
PROFESSOR: TOTH / HAMORI

V. CONCLUSIONS
I. STATUS SEEKING CAN BE WASTEFUL IN TERMS OF RESOURCES AND CONSUMER BEHAVIOR. I. CONVERSELY IT OFFERS A VALUABLE OPPORTUNITY FOR THE CORRECTION OF: I. MARKET FAILURES. II. SOCIAL COORDINATION. I. EXISTING STATUS REWARDS ARE NOT DESIGNED TO PERFECTLY CORRECT PROBLEM AREAS. FOR EACH INTERVENTION METHOD MENTIONED, THERE EXIST STATUS INCENTIVES IN SOCIAL CONTEXTS.

III.

II. FINALLY, STATUS SEEKING CAN HAVE POSITIVE EFFECTS ON SOCIETY WHEN
INDIVIDUALS SEEK RESPECT THROUGH BEHAVIOR WITH POSITIVE RESULTS ON SOCIETY

CLIFFORD DALLON

BEHAVIORAL ECONOMICS
PROFESSOR: TOTH / HAMORI

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