We argue that many goods and decisions are not allocated or made through markets. We interpret an agent's status as a ranking device that determines how well he or she fares in the nonmarket sector. The existence of a nonmarket sector can endogenously generate a concern for relative position in, for example, the income distribution so that higher income implies higher status. Moreover, it can naturally yield multiple equilibria. It is thus possible to explain differences in growth rates across countries without recourse to differences in underlying preferences, technologies, or endowments. Different social organizations lead to different reduced-form preferences, which lead to different growth rates.

The authors argue that many goods and decisions are not allocated or made through markets. They interpret an agent's status as a ranking device that determines how well he or she fares in the nonmarket sector. The existence of a nonmarket sector can endogenously generate a concern for relative position in, for example, the income distribution so that higher income implies higher status. Moreover, it can naturally yield multiple equilibria. It is thus possible to explain differences in growth rates across countries without recourse to differences in underlying preferences, technologies, or endowments. Different social organizations lead to different reduced-form preferences, which lead to different growth rates.

There are two striking aspects of the recovery from the Great Depression in the United States: the recovery was very weak, and real wages in several sectors rose significantly above trend. These data contrast sharply with neoclassical theory, which predicts a strong recovery with low real wages. We evaluate the contribution to the persistence of the Depression of New Deal cartelization policies designed to limit competition and increase labor bargaining power. We develop a model of the bargaining process between labor and firms that occurred with these policies and embed that model within a multisector dynamic general equilibrium model. We find that New Deal cartelization policies are an important factor in accounting for the failure of the economy to recover back to trend.