Research

The Marginal Costs and Benefits of Redistributing Income and the Willingness to Pay for Status

The effect of status on aggregate welfare is ambiguous for marginal reforms that redistribute income. If average consumption falls, the change in relative consumption increases household utility but reinforces the decrease in household labor supply, raising welfare cost. For parameterizations of the model developed here, reforms which lower average consumption increase aggregate welfare. Numerical calculations show that status increases marginal welfare cost and marginal net benefit for a demogrant reform. Redistributing to high income households may increase aggregate welfare depending on the definition of average consumption and if the willingness to pay for status increases with income.

Publication Information
Article Title: The Marginal Costs and Benefits of Redistributing Income and the Willingness to Pay for Status
Journal: Journal of Public Economic Theory (Sep, 2006)
v. 8 iss. 3 pp. 357-377
Author(s): Allgood, Sam
Researcher Information
    
Allgood, Sam
Allgood, Sam
Edwin J. Faulkner Professor of Economics
Expertise:
  • Economic Education
  • Labor Economics (wages, employment, working conditions, unions)
  • Microeconomics
Economics
CoB 525 V
P.O. Box 880489
University of Nebraska-Lincoln
Lincoln, NE 68588-0489, USA
Phone: (402) 472-3367
Fax: (402) 472-9700
sallgood1@unl.edu