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Social Capital and the Status Externality

Itaya, Jun-ichi; Tsoukis, Chris

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Authors

Jun-ichi Itaya



Abstract

This paper investigates how the presence of social capital affects the externality arising from status-seeking preference as a parable for inefficient antagonistic behavior. It is assumed that the stock of social capital accumulates through the strategic interaction among rational, infinitely-lived, individuals of a finite number. Using a differential game, we show that there are two types of Markov perfect equilibrium strategies, of which one leads a society to zero social capital, while the other leads to the satiation level of social capital. When there is an unstable interior steady state, there is a threshold: with any initial stock of social capital above (below) that, society is able to build social capital (correspondingly, get stuck in a poverty trap of null social capital). In the latter case, the intervention of governments is called upon, because social welfare in the poverty trap is less than that in the social capital-rich society. JEL classification: C72; D91; Z13

Journal Article Type Article
Acceptance Date Feb 26, 2020
Online Publication Date Jul 1, 2020
Publication Date 2022-06
Publicly Available Date May 26, 2023
Journal International Journal of Economic Theory
Print ISSN 1742-7355
Electronic ISSN 1742-7363
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 18
Issue 2
DOI https://doi.org/10.1111/ijet.12261
Keywords differential game, Markov perfect equilibrium, poverty trap, social capital, status externality
Publisher URL https://doi.org/10.1111/ijet.12261

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