Social status competition and the impact of income inequality in evolving social networks: An agent-based model

In this paper, we consider conspicuous consumption in a model in which individuals compare themselves to their social network neighbors in terms of the amount of a status good purchased. Individuals are heterogeneous with respect to income and can change their network links based on utility considerations. We study the impact of income inequality and income redistribution on status competition and individual welfare. We find that individuals with similar income levels tend to be connected to each other in the social network emerging in the long run. Under these circumstances, the income redistribution does not significantly affect the income share spent on the status good and the relative status of individuals. In a relatively equal society, individuals with below median income levels are better off in terms of welfare, everybody else is worse off. The aggregate effect of income redistribution on welfare is negative.