When today’s rewards are tomorrow’s endowments: The effects of inequality on social competition

In this paper we study the role of inequality in a model of repeated social competition where endowments (the resources used in the competition) and rewards (the resources obtained as prizes) are connected because the rewards of today’s competition determine the endowments of tomorrow’s competition. We find that the harshness of social compe- tition is maximal for an intermediate level of inequality, and that increasing or decreasing inequality beyond that level monotonically mitigates social competition, up to completely eliminating it at the extremes. If social competition is wasteful, utilitarian welfare is max- imized in case of equality. A greater uncertainty about the connection between today’s rewards and tomorrow’s endowments mitigates social competition. Finally, there emerge concerns for others’ resources that are downward and not upward, with the value of high social standing which changes non-monotonically in the resources of those with lower standing.