Federal Reserve Bank of Minneapolis Quarterly Review Vol. 19, No. 3, Summer 1995, pp. 12–21 Incorporating Concern for Relative Wealth Into Economic Models Harold L. Cole George J. Mailath Andrew Postlewaite Senior Economist Professor of Economics Professor of Economics Research Department University of Pennsylvania University of Pennsylvania Federal Reserve Bank of Minneapolis Abstract This article develops a simple model that captures a concern for relative standing, or status. This concern is instrumental in the sense that individuals do not get utility directly from their relative standing, but, rather, the concern is induced because their relative standing affects their consumption of standard commodities. The article investigates the consequences of a concern for relative wealth in models in which individuals are making labor/leisure choice decisions. The analysis shows how individuals’ decisions are affected by the aggregate income distribution and how the concern for relative wealth can generate behavior that can be interpreted as conspicuous consumption when wealth is not directly observable. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System.