Aversion to inequality in Italy and its determinants

The main goal of this paper is to estimate the preferences of the Italian society towards equity in order to verify whether preferences (i) have changed across the years, and (ii) can be related to specific socio-demographic characteristics. Introducing equity concerns in the implementation of economic policies is a fundamental problem faced by both economists and policy makers. This paper uses a social welfare function à la Jorgenson and Slesnick to estimate societys aversion towards inequality by implement in a voting scheme for compiling individuals equity preferences in to a social choice by majority rule. The results show that preferences are highly polarized toward a low and a high concern for equity aversion and that this concern is significantly related with several sociodemographic characteristics. Among them, income plays an important role with richer people tending to favor less equity. Results also show that preferences towards equity have changed across the years.     

Aversion to inequality in Italy and its determinants

The main goal of this paper is to estimate the preferences of the Italian society towards equity in order to verify whether preferences (i) have changed across the years, and (ii) can be related to specific socio-demographic characteristics. Introducing equity concerns in the implementation of economic policies is a fundamental problem faced by both economists and policy makers. This paper uses a social welfare function à la Jorgenson and Slesnick to estimate society’s aversion towards inequality by implementing a voting scheme for compiling individuals’ equity preferences into a social choice by majority rule. The results show that preferences are highly polarized toward a low and a high concern for equity aversion and that this concern is significantly related with several sociodemographic characteristics. Among them, income plays an important role with richer people tending to favor less equity. Results also show that preferences towards equity have changed across the years.     

A tractable model of process fairness under risk

This paper proposes a social utility model of individual preferences for process fairness that complements the Fehr–Schmidt model for outcome fairness. The model assumes that the outcome generating process rather than the actual outcomes influences fairness perceptions, and that process fairness is evaluated through comparison of expected payoffs. The process model successfully predicts data from bargaining games involving risky payoffs that neither outcome-based nor reciprocity models can explain. In a theoretical application, Machina’s parental example for non-expected utility in a distributional problem (Machina’s Mom) is analyzed by incorporating individual level process fairness preferences under expected utility.     

AN ECONOMIC ANALYSIS OF IDENTITY AND CAREER CHOICE*

Standard economic models tend to be more specific about pecuniary payoffs than nonpecuniary payoffs to education. Based on the ideas of Akerlof and Kranton, we consider a model of career choice and identity where individuals derive nonpecuniary identity payoffs. Using factor analysis on a range of attitude questions, we find two factors related to identity (career orientation and social orientation), which are important for planned educational choices and for observed gender differences. The implication is that policy makers and institutions of higher education need to focus on identity‐related issues rather than just improved financial incentives if they aim at attracting high‐ability youths to certain careers. (JEL I21, J24)     

Identification of domain restrictions over which acyclic, continuous-valued, and positive responsive social choice rules operate

We consider a social choice problem in various economic environments consisting of n individuals, 4≤n<+∞, each of which is supposed to have classical preferences. A social choice rule is a function associating with each profile of individual preferences a social preference that is assumed to be complete, continuous and acyclic over the alternatives set. The class of social choice rules we deal with is supposed to satisfy the two conditions; binary independence and positive responsiveness. A new domain restriction for the social choice rules is proposed and called the classical domain that is weaker than the free triple domain and holds for almost all economic environments such as economies with private and/or public goods. In this paper we explore what type of classical domain that admits at least one social choice rule satisfying the mentioned conditions to well operate over the domain. The results we obtained are very negative: For any classical domain admitting at least one social choice rule to well operate, the domain consists only of just one profile.     

Axiomatic foundations for fairness-motivated preferences

Much work in social choice theory takes individual preferences as uninvestigated inputs into aggregation functions designed to reflect considerations of fairness. Advances in experimental and behavioural economics show that fairness can also be an important motivation in the preferences of individuals themselves. A proper characterisation of how fairness concerns enter such preferences can enrich the informational basis of many social choice exercises. This paper proposes axiomatic foundations for individual fairness-motivated preferences that cover most of the models developed to rationalise observed behaviour in experiments. These models fall into two classes: Outcome-based models, which see preferences as defined only over distributive outcomes, and context-dependent models, which allow rankings over distributive outcomes to change systematically with non-outcome factors. I accommodate outcome-based and context-sensitive fairness concerns by modelling fairness-motivated preferences as a reference-dependent preference structure. I first present a set of axioms and two theorems that generate commonly used outcome-based models as special cases. I then generalise the axiomatic basis to allow for reference-dependence, and derive a simple functional form in which the weight on each person’s payoff depends on a reference vector of how much each person deserves.     

More than self-interest: Why different classes have different attitudes to income inequality

The connection between social class and political preferences is among the most well established in the social sciences. This association is typically taken as prima facie evidence of economic self-interest: Classes hold different attitudes, values, and party preferences because they have different economic interests. However, this assumption has rarely been tested empirically. In this article, we use survey data from 18 West European countries to examine why classes differ on a central aspect of political preferences, namely their views on the desirability of income inequality. We find that only a moderate proportion of differences between employee classes in support for redistribution can be accounted for by contemporary differences in resources and risks; differences in economic interests to some degree account for the anti-redistributive preferences of the professional middle classes compared with the working class. However, the preferences of the self-employed have a different explanation; autonomy is a better explanation of the right-wing preferences of the self-employed compared with the working class.     

The Impact of Uruguay's 2007 Tax Reform on Equity and Efficiency

In 2007, the Uruguayan government implemented a tax reform which introduced a new progressive labour income tax and a flat capital income tax, and reduced some indirect taxes, with the objective of improving fiscal balance, income distribution and economic growth. This article evaluates the impact of such tax reform on equity and efficiency on the basis of data derived from the Encuesta Continua de Hogares (ECH) for 2006 and 2009. Using a Difference‐in‐Differences technique, it shows that the new system reduced inequality by 2 Gini points without producing any discernible disincentive effect, suggesting that suitably designed reforms of direct taxation can simultaneously promote equity and efficiency.     

Quality of life: Efficiency,equity and freedom in the United States and Scandinavia

The article discusses three basic elements of quality of life and seeks to illuminate these from two cultural perspectives. The elements are 1) social equity (including issues like virtues, justice, fairness, equal moral value, human rights, resource ethics etc. and 2) efficiency (including issues like economic efficiency, productivity, material well being, etc.) 3) freedom (including liberty, pursuit of happiness, individual choice, exit and voice options, etc.). Concerns for social equity, efficiency and freedom are at the heart of the political debate in many countries. In this article, we will look at some of the ways in which the Scandinavian cultures and the American culture view these basic elements of quality of life. It is argued that social equity drives efficiency and freedom of choice.     

Household consumption: Influences of aspiration level, social comparison, and money management

The present research posits and tests a model of household consumption of less necessary or luxury goods and services. It is hypothesized that a household's economic situation has a direct effect on this consumption as well as indirect effects mediated by aspiration level, social comparison and money management. Structural equation modeling of questionnaire data from a sample of households in a metropolitan area of Sweden (n=411) was used to test the model. The results reveal that as expected the household's economic situation has a significant direct effect on consumption and indirect effects through aspiration level and social comparison. The results also show that satisfaction with consumption increases with increased consumption and decreases with higher aspiration levels.     

The direct social preference relation in the theory of public expenditure

It is shown that if there is a finite number of private goods, a single public good, and the individual preferences satisfy certain monotonicity and separability conditions then there is a unique and complete social preference relation defined on the set of allocations by the requirement that the relation is individualistic in terms of the individual ordinal preferences. This relation, called the direct social preference relation, is derived without imposing interpersonal welfare comparisons and all its ordinal properties are inherited directly from those of the individual preferences. However, an allocation which is maximal in terms of the direct social preference relation on the set of feasible allocations is in general not Pareto optimal and the relation may therefore not be suitable as a guide to optimizing social choice.This version of the paper has benefitted from J. Weymark's insightful and detailed comments. In addition, valuable suggestions have been received from G. C. Archibald, C. Blackorby, D. Donaldson and D. Primont. All remaining errors are the sole responsibility of the author     

ON THE SOCIAL DIMENSION OF TIME AND RISK PREFERENCES: AN EXPERIMENTAL STUDY

When explaining risk taking, intertemporal allocation, and distributing behavior, economists rely on risk, time, and other-regarding preferences but offer no guidance on how these three crucial aspects are interrelated. We report on an experiment exploring such interrelation. For this sake, we compare evaluations of several prospects, each of which allocates certain or risky and immediate or delayed payoffs to the actor and to another participant. We find that individuals are self-oriented as to social allocation of risk and delay and other-regarding with respect to expected payoffs . ( JEL C91, D63, D81)     

Labor Market Structure and Career Occupational Status Mobility: A Theoretical Model*

Sociological explanations of career or intragenerational occupational status mobility generally have not taken into explicit account the effects of labor market structure. Rooted in structural-functionalist sociological theory or neoclassical economic theories of the labor market, models typically misrepresent the process of individual occupational status mobility, primarily by including only individual characteristics. Dual labor market theory is introduced, direct as well as indirect effects of labor market structure on career occupational status mobility are outlined, and a theoretical model is presented. It is hypothesized that labor market structure will have direct effects on opportunities for career occupational status mobility that are independent of the effects of individual characteristics. Additional indirect effects are suggested: through their effects on social network structures, labor markets operate as job opportunity information filters.     

Rights of access to land for outdoor recreation in New Zealand: : dilemmas concerning justice and equity

Rights of access to land for outdoor recreation are of current concern to many western governments. They require a balance to be struck between collective rights to the land and individual rights of exclusion. Theories of land rights have limitations in informing the appropriate apportionment of such rights for recreational access since they emanate from such a disparate range of cultural and philosophical positions and invariably they are based on the productive attributes of the land. Collectively, such theories do offer a number of characteristics that might inform land rights apportionment for access: historically determined justice, contemporary justice through citizenship, distributional equity, intergenerational equity and economic efficiency. These characteristics are explored in the context of the development of recreational access rights in New Zealand. Whilst notions of justice can be seen to be transgressed in land rights structures imposed through European settlement, these structures themselves were founded on notions of equity as a direct result of the loss of access rights in 19th Century England. The reassertion of Maori land rights compromises both distributional and intergenerational equity but may make a contribution to economic efficiency as well as re-establishing historically determined justice. The case study illustrates inherent dilemmas in rights apportionment for access to land for outdoor recreation where ultimately it may not be possible to achieve any consensual outcome.     

Using econometric analysis of willingness-to-pay to investigate economic efficiency and equity of domestic water services in the West Bank

The paper is aimed at providing evidence on economic efficiency, and equity of distribution of domestic water services in the West Bank. The study utilizes the CVM as a means of monetizing public preferences and households’ WTP. In the CVM questionnaire, the dichotomous choice with follow-up debriefing questions format is followed by an open-ended follow-up question was undertaken. A second questionnaire survey was directed to employees from water institutions, which was mainly designed to investigate the reasons behind the full absence of private sector in the provision of water supply. The two samples were selected to ensure a representative samples in accordance with the Palestinian case. The main findings of this paper gauged the WTP with key socioeconomic variables suggested by economic theory and previous CVM studies. These results provide information on economic efficiency and equity of water distribution. The results will allow decision makers to develop new policies that can achieve more efficient and equitable domestic water services.     

Discrete choice models of labour supply,behavioural microsimulation and the Spanish tax reforms

The aim of the present study is to show the potential of behavioural microsimulation models as powerful tools for the ex ante evaluation of public policies. We analyse the impact of recent Spanish income tax reforms upon efficiency and household and social welfare and study the effects of various (basic-income and vital-minimum) flat tax schemes. The analysis is performed using a microsimulation model in which labour supply is explicitly taken into account. Instead of following the traditional continuous approach (Hausman, Labour supply, Aaron and Pechman (eds.), How Taxes Affect Economic Behaviour, The Brooking Institution, Washington, DC, 1981; Econometrica, 53: 1255–1282, 1985; Taxes and labour supply, Auerbach and Feldstein, (eds.), Handbook of Public Economics, North-Holland, Amsterdam, vol. 1, 1979), we estimate the direct utility function employing the methodology proposed by Aaberge et al. (Scand. J. Econ., 97: 635–659, 1995) and Van Soest (J. Hum. Resour., 30: 63–88, 1995). We maintain population heterogeneity by applying a social welfare analysis to the complete sample, rather than merely focusing on the active population. The source of our data is a sample of Spanish individuals in the 1995 wave of the EC Household Panel. We find that the redistribution policies considered have only had a minor impact on economic efficiency but, by contrast, have significantly affected social welfare. An erratum to this article can be found at     

TRUST,RECIPROCITY, AND RULES

Many economic interactions rely on trust and trust violations can have serious economic consequences. Simple minimum standard rules are attractive because they prevent egregious trust violations. However, they may undermine more trusting and reciprocal (trustworthy) behavior that otherwise would have occurred, leading to worse outcomes. In an experimental trust game, we test the efficacy of exogenously imposed minimum standard rules. Rules damage trust and reciprocity, reducing economic welfare. While sufficiently restrictive rules restore welfare, trust and reciprocity never return. Results indicate that participants are concerned about payoffs while also using the game to learn about trust and trustworthiness of others. (JEL C72, C90, D63, D64, L51)     

REFERENCE‐DEPENDENT PREFERENCES,LOSS AVERSION,AND LIVE GAME ATTENDANCE

We develop a consumer choice model of live attendance at a sporting event with reference‐dependent preferences. The predictions of the model motivate the “uncertainty of outcome hypothesis” (UOH) as well as fans' desire to see upsets and to simply see the home team win games, depending on the importance of the reference‐dependent preferences and loss aversion. A critical review of previous empirical tests of the UOH reveals significant support for models with reference‐dependent preferences, but less support for the UOH. New empirical evidence from Major League Baseball supports the loss aversion version of the model. (JEL L83, D12)     

Equity, continuity, and myopia: A generalization of Diamond’s impossibility theorem

 We consider social preferences over infinite horizon intergenerational consumption paths. We use the Mackey topology to define continuity of social preferences. Our main objective is to generalize one of Diamond’s impossibility theorems. First, we show that the trivial preference relation is the only asymmetric social preference relation satisfying equity and continuity. Second, we compare Campbell’s impossibility theorem with ours. Finally we use an order-based notion of myopia and establish another impossibility result. Received: 26 August 1994/Accepted: 5 June 1996