Pecuniary emulation, inequality and growth

We study a two-class growth model in which agents care about both consumpti on and the social perception of their wealth rank. The latter determines th e social status enjoyed by agents. Social perceptions are based upon noisy signals of wealth and in equilibrium there is incomplete separation of clas ses. The steady growth rate of the economy increases with the full-informat ion status differential between classes and, contrary to the growth model w ithout status, it is affected by the initial level of wealth inequality. Bo th too much equality and too much inequality are detrimental to economic gr owth. (C) 1999 Elsevier Science B.V. All rights reserved, JEL classificatio n. O40; O41.