Social organization, status, and savings behavior

Abstract

We develop a model of status seeking in the presence of incomplete information and derive its implications for aggregate savings. Status seeking endogenously takes the form of conspicuous consumption. Its impact on savings depends on the scheduling of the contests for status over the life cycle. If individuals engage in conspicuous consumption when old, aggregate savings are increased. We also study the role of social segmentation. While social segmentation reduces the inequality across status seekers and fuels social rivalry under complete information, we show that under incomplete information, social segmentation weakens the incentive to strive for greater status.