Abstract
In this paper we apply the instrumental approach to social preferences in order to distinguish among various shapes of preferences for social status. In particular, we consider the shape of reduced preferences that emerge in the equilibrium of a two-sided matching model with non-transferable utility. Cole et al. (1992, 1995) show that, under full observability of potential mates׳ attributes, instrumental concerns for social status are ordinal, i.e., only one׳s own rank in the distribution of attributes matters. We show that when we depart from full observability, instrumental concerns for social status become cardinal, i.e., also other features of the distribution of attributes matter. We also show that the actual shape of cardinal concerns depends on how individuals can deal with the informational asymmetry, alternatively leading to upward concerns, i.e., making comparisons with higher rank people; downward concerns, i.e., making comparisons with lower rank people; or bidirectional concerns, i.e, being both upward and downward.
Highlights
Most economists agree that social preferences are relevant to economic behavior, not many economists systematically incorporate social preferences into their models
We focus on the case where reduced form preference for status emerge from a two-sided matching market with non-transferable utility (NTU). We focus on this model of matching because it provides a strategic environment where, under perfect observability of potential mates, concerns for social status naturally emerge in the form of ordinal concerns (Cole et al, 1995), i.e., concerns for one’s own rank only
We show that the way in which individuals can deal with the informational asymmetry determines the actual shape of cardinal concerns for status that emerges in equilibrium
Summary
Most economists agree that social preferences are relevant to economic behavior, not many economists systematically incorporate social preferences into their models. We focus on the case where reduced form preference for status emerge from a two-sided matching market with non-transferable utility (NTU) We focus on this model of matching because it provides a strategic environment where, under perfect observability of potential mates, concerns for social status naturally emerge in the form of ordinal concerns (Cole et al, 1995), i.e., concerns for one’s own rank only. As this result has been already established by Cole et al (1995), and discussed in further detail in Postlewaite (1998), we skip most technical aspects and omit all proofs. Appendix A contains formal definitions of concerns for social status and their possibile shapes, while appendix B contains the proofs of all the original results that are given in the paper
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