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Social Capital and Status Externality
1 : Graduate School of Economics and Business Administration, Hokkaido University
2 : Faculty of Humanities and Social Sciences, Keele University
This paper investigates how the presence of social capital affects status externality in a dynamic economy. It is assumed that the stock of social capital is accumulating through jointly social interactions among individuals who are forward looking. Using a differential game, we show not only that the presence of social capital mitigates the tendency of overconsumption over time, and hence makes the resulting allocation closer to the Pareto efficient one. It is also show that higher rates of consumption taxation promotes accumulation of social capital thus improving social welfare.
