Dennis J. Snower
Steven J. Bosworth (University of Reading; Kiel Institue) — Dennis J. Snower (Kiel Institute; Christian Albrecht University, Kiel; CEPR; IZA)
This paper models the welfare consequences of social fragmentation arising from technological advance. We consider an economy in which people pursue individualistic, positionally competitive and prosocial activities. We start from the premise that technological progress falls primarily on market-traded commodities rather than prosocial relationships, since the latter intrinsically require the expenditure of time and thus are less amenable to productivity increases. We also assume that prosocial relationships take place primarily within social groups and positionally competitive activities primarily across social groups. Consequently technological progress causes people to narrow the bounds of their social groups, reducing their prosocial relationships and extending their status-seeking activities. Since prosocial relationships generate positive preference externalities whereas status-seeking activities generate negative preference externalities, technological advance may lead to a "decoupling" of social welfare from GDP. Once the share of status goods in total production exceeds a crucial threshold, technological advance is shown to be welfare-reducing.