A Theory of Association: Social Status, Prices and Markets

The utility from some 'commodities' depends on the allocation rule used to distribute it. If, for example, a prize for excellence in some field is given frequently to the highest bidders, its recipients would feel less happy than they would otherwise. Such goods are called association goods. It is argued that a wide range of commodities have an element of the association good in them and that for such commodities standard theory end prescriptions run into difficulty. For instance, the prescription: "turn the good over to the price mechanism", may not be a good one because the value of the good may be diminished purely by virtue of resorting to the price mechanism to allocate it. This paper examines a variety of association goods, especially club memberships, jobs and school admissiors.