Status Seeking and Social Welfare: Is There Virtue in Vanity?*

Objectives. This article examines how social status rewards can affect social welfare outcomes in the presence of positive and negative externalities. Method. A rational choice approach is used to characterize how individuals respond to incentives to seek high status (and avoid stigma) given existing preferences, technology, and the sources of status defined within a given reference group. Results. In the presence of market failures, the analysis identifies several kinds of status‐related interventions that encourage acts with positive externalities or discourage those with negative externalities, with results that contribute to social well‐being generally. Conclusions. The analysis characterizes ways that formal and informal social mechanisms can make these incentives more effective, and finds abundant evidence that interventions of this kind are widely observed in society today.