I want to thank the referee, the associate editor, and the editor for their helpful comments or suggestions. The remaining errors are mine.
Social Inefficiency of Free Entry with Status Effects
Article first published online: 12 MAR 2013
© 2013 Wiley Periodicals, Inc.
Journal of Public Economic Theory
Volume 15, Issue 2, pages 229–248, April 2013
How to Cite
WOO, W. C. (2013), Social Inefficiency of Free Entry with Status Effects. Journal of Public Economic Theory, 15: 229–248. doi: 10.1111/jpet.12016
- Issue published online: 12 MAR 2013
- Article first published online: 12 MAR 2013
- Received January 3, 2010; Accepted May 11, 2011.
Free markets may support too many or too few firms. Traditional analysis does not provide unambiguous conclusion in this respect. This paper introduces status effects of consumption into the model. It shows that a sufficiently significant status effect tends to support too many firms. Two conditions are required for this result. First, complementary effect between status and consumption is not significant. Second, a higher average status consumption level makes everyone more difficult to get the same degree of gain in status. Both conditions appear to be realistic.