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Cognitive dissonance, status and growth of the underclass* 


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    I am indebted to Louis Makowski for his invaluable advice. Comments by John Boyce, Humberto Llavador, three anonymous referees and a very patient editor significantly improved the paper. I would also like to thank Giacomo Bonanno, B. Curtis Eaton, Sami Kitmitto, and Allison Oxoby for helpful comments. Financial support from the Russell Sage Foundation is gratefully acknowledged.


We present a model of cognitive adaptation to examine the growth and behaviours of the underclass. In the model, individuals experiencing cognitive dissonance between status seeking and social recognition adapt their attitudes regarding what is deemed status worthy. This yields the endogenous formation of an underclass in which non-pecuniary social returns counteract the effect of traditional incentives (i.e. wages) in motivating behaviour. By gaining insight into the process of psychological adaptation of those living in poverty, the paper sheds light on economic policies that mitigate the disenfranchisement and hence the growth of the underclass.

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