On the equilibrium and welfare consequences of getting ahead of the Smiths

This paper provides an analysis of the social consequences of people seeking to get ahead of the Smiths. All individuals attempt to reach a higher rank than the Smiths, including the Smiths themselves. This attitude gives rise to an equilibrium in which all individuals have equal utilities but unequal (gross) incomes. Due to a rat‐race effect, individuals devote too much energy to climbing the social scale. However, laissez‐faire equilibrium is an equal‐utility constrained social optimum. Conversely, a utilitarian social planner would not choose utility equality. Unexpectedly, this social ambition theory fairly well accounts for empirical intermediate wage inequality.