The Two Sides of Envy

Boris Gershman

No 2012-19, Working Papers from American University, Department of Economics

Abstract: The two sides of envy, destructive and constructive, give rise to qualitatively different equilibria, depending on the economic, institutional, and cultural environment. If investment opportunities are scarce, inequality is high, property rights are poorly protected, and social comparisons are strong, society is likely to be in the "fear equilibrium," in which better endowed agents restrain their efforts to prevent destructive envy of the relatively poor. Otherwise, the standard "keeping up with the Joneses" competition arises, and envy is satisfied through suboptimally high efforts. Economic growth expands the production possibilities frontier and triggers an endogenous transition from one equilibrium to the other causing a qualitative shift in the relationship between envy and economic performance: envy-avoidance behavior with its adverse effect on investment paves the way to creative emulation. From a welfare perspective, better institutions and wealth redistribution that move the society away from the low-output fear equilibrium need not be Pareto improving in the short run, as they unleash the negative consumption externality, but in the long run such policies are likely to increase social welfare due to enhanced productivity growth.

Keywords: Economic growth; Envy; Inequality; Property rights; Redistribution (search for similar items in EconPapers)
JEL-codes: D31 D62 D74 O10 O43 Z13 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-evo, nep-hpe and nep-mic
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Citations: View citations in EconPapers (2)

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https://doi.org/10.17606/xtyv-sp16 First version, 2012 (application/pdf)

Related works:
Journal Article: The two sides of envy (2014)
Working Paper: The two sides of envy (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:amu:wpaper:2012-19

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