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Social network structure and status competition

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Article
Author/s: 
Michael Alexeev and Yao-Yu Chih
Canadian Journal of Economics
Publisher: 
Wiley
Year: 
2015
In status competition studies, the utility of heterogeneous individuals typically depends on an economy-wide average indicator of status. In our model, emulative and jealous agents are embedded in an exogenous network where agent-specific reference group is determined by the direct link emanating from the agent. Similarly to Ghiglino and Goyal (2010) but in a somewhat different framework, we show that individual consumption is proportional to the agent's “outbound” Katz-Bonacich network centrality measure and equilibrium is generally inefficient. More important, the negative externality associated with each agent depends on her “inbound” centrality measure—the conspicuousness index. A tax based on this index combined with a uniform lump-sum transfer attains efficiency.
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