Investment and concern for relative position (Q5954192)

The authors investigate how individuals' investment behavior changes as a result of nonmarket behavior. More precisely, they analyze how nonmarket concerns, such as matching, can affect not only the level of investments that people make, but also the composition of their investments. They consider a model in which individuals have to decide how to allocate their initial endowment between two random investments, where the returns are perfectly correlated across individuals for the first investment but independent across individuals for the second one. The investment model presents a continuum of men and of women , each uniformly distributed on \([0,1]^2\) . Only females have the capital good and hence the ability to produce the female consumption goods. The system of preferences is given. The attention is restricted to symmetric equilibria of the model, which substantially simplifies the analysis since if all the females make identical investment decisions, it is possible to assume that the distribution of females' wealth depends only on this common decision and the realized aggregate rate of return. The main proposition deals with the conditions of the existence of a symmetric interior equilibrium. Multiple common projects are also considered.