Technological advance, social fragmentation and welfare

• Published in: Social choice and welfare Vol. 62; no. 2; pp. 197 - 232
• Main Authors: Bosworth, Steven J., Snower, Dennis J.
• Format: Journal Article
• Language: English
• Published: Berlin/Heidelberg Springer Berlin Heidelberg 01-03-2024; Springer Nature B.V
• Subjects: Commodities; Commodity markets; Economic Theory/Quantitative Economics/Mathematical Methods; Economics; Economics and Finance; Externality; Game Theory; Group status; International Political Economy; Original Paper; Productivity; Prosocial behavior; Public Finance; Segmentation; Social and Behav. Sciences; Social fragmentation; Social groups; Social identity; Social Policy; Social status; Social welfare; Technological progress
• ISSN: 0176-1714; 1432-217X
• DOI: 10.1007/s00355-023-01484-0

This paper models the welfare consequences of social fragmentation arising from technological advance. 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. Since prosocial relationships require individuals to identify with others in their social group whereas marketable commodities are commonly the objects of social status comparisons, a tradeoff arises between in-group affiliation and inter-group status comparisons. People consequently narrow the bounds of their social groups, reducing their prosocial relationships and extending their status-seeking activities. As prosocial relationships generate positive externalities whereas status-seeking activities generate negative preference externalities, technological advance may lead to a particular type of “decoupling” of social welfare from material prosperity. Once the share of status goods in total production exceeds a crucial threshold, technological advance is shown to be welfare-reducing.