Economics and Social Status

Social status is a social reward that affects the incentive structure facing individuals. If status is provided to educated people, more people will obtain an education. The choice of occupation is affected by the social status associated with different occupations, establishing a link between social status, the equilibrium wage structure and the allocation of workers among occupations. When status is not directly observed, people try to signal it by changing their consumption choices or behaviour. The narrow paradigm of homo economicus should be extended to include social status among the basic motivations for economic decisions. People are social animals who care about their standing in society and about what other members of society think about them. Stated differently, people care about their ‘prestige’ or the ‘respect’ that they are accorded by individuals with whom they interact. Many people would gladly pay large sums of money for a knighthood. Similarly, the value of the Nobel Prize lies not entirely in the monetary prize itself; hence, we would not be surprised to find that many people might actually be willing to pay to obtain this prize. These observations on human nature are far from new. Hobbes, for example, wrote that: ‘Men are continuously in competition for honour and dignity’ (cited in Hirschman, 1973, p. 634). While the focus of traditional economics has been on the monetary rewards that are exchanged through a market mechanism, sociologists have stressed social status and other social rewards as important motivations for human behaviour. The term ‘social status’ was first introduced by Max Weber as ‘an effective claim to social esteem in terms of negative or positive privileges’ (Weber, 1922, p. 305). One of the important factors that distinguishes societies and determines their success is the form of the incentives they provide to their members. Generally speaking, there are three broad types of such incentives: (a) private monetary rewards,