Most economists are sympathetic to the idea that concerns for relative
position are an important aspect of many economic problems. There has
traditionally been a reluctance to include such concerns primarily be
cause models that included them often allow such a broad range of beha
vior that there are few, if any, restrictions on equilibrium behavior
and, hence, such models would have little or no predictive power. In t
his paper we discuss how reduced form models may naturally give rise t
o utility functions that depend, in part, on relative standing. There
are several advantages of modelling concern for relative standing in r
educed form utility functions even when there is no similar concern in
the 'deep' preferences. It provides structure and constraints on the
way that relative standing affects utility, and further, it can yield
testable implications about the way that changes in the underlying env
ironment affect the concern for relative standing. We discuss the adva
ntages and disadvantages of modelling social concerns in this way and
provide examples that illustrate how concerns for relative standing ca
n affect savings, investment and labor choice decisions. (C) 1998 Else
vier Science B.V. All rights reserved.