Journal of Economic Growth

, Volume 19, Issue 4, pp 407–438 | Cite as

The two sides of envy

  • Boris Gershman


The two sides of envy, destructive and constructive, give rise to qualitatively different equilibria, depending on the economic, institutional, and cultural environment. If investment opportunities are scarce, inequality is high, property rights are not secure, and social comparisons are strong, society is likely to be in the “fear equilibrium,” in which better endowed agents underinvest in order to avoid destructive envy of the relatively poor. Otherwise, the standard “keeping up with the Joneses” competition arises, and envy is satisfied through suboptimally high efforts. Economic growth expands the production possibilities frontier and triggers an endogenous transition from one equilibrium to the other causing a qualitative shift in the relationship between envy and economic performance: envy-avoidance behavior with its adverse effect on investment paves the way to creative emulation. From a welfare perspective, better institutions and wealth redistribution that move the society away from the low-output fear equilibrium need not be Pareto improving in the short run, as they unleash the negative consumption externality. In the long run, such policies contribute to an increase in social welfare due to enhanced productivity growth.


Culture Economic growth Envy Inequality Institutions Redistribution 

JEL Classification

D31 D62 D74 O15 O43 Z13 



I am grateful to the Editor, Oded Galor, and two anonymous referees for their advice. Quamrul Ashraf, Pedro Dal Bó, Carl-Johan Dalgaard, Geoffroy de Clippel, Peter Howitt, Mark Koyama, Nippe Lagerlöf, Ross Levine, Glenn Loury, Stelios Michalopoulos, Michael Ostrovsky, Jean-Philippe Platteau, Louis Putterman, Eytan Sheshinski, Enrico Spolaore, Ilya Strebulaev, Holger Strulik, David Weil, and Peyton Young provided valuable comments. I also thank seminar and conference participants at American University, Brown University, George Mason University, Gettysburg College, Higher School of Economics, Fall 2011 Midwest economic theory meetings at Vanderbilt University, Moscow State University, 2011 NEUDC conference at Yale University, 2013 ASREC conference in Arlington, 2013 EEA-ESEM congress in Gothenburg, New Economic School, SEA 80th annual conference in Atlanta, University of Copenhagen, University of Namur, University of Oxford, University of South Carolina, and Williams College.

Supplementary material

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Department of EconomicsAmerican UniversityWashingtonUSA

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