Inequality,happiness and relative concerns: What actually is their relationship? |
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Authors: | Ed Hopkins |
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Institution: | (1) Economics, University of Edinburgh, Edinburgh, EH8 9JY, UK |
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Abstract: | This paper briefly and informally surveys different theoretical models of relative concerns and their relation to inequality.
Models of inequity aversion in common use in experimental economics imply a negative relation between inequality and happiness.
In contrast, empirical studies on happiness typically employ models of relative concerns that assume that increases in others’
income always have a negative effect on own happiness. However, in these latter models, the relation between inequality and
happiness can be positive. One possible solution is a rivalry model where a distinction is made between endowment and reward
inequality which have respectively a negative and positive effect on happiness. These different models and their contrasting
results may clarify why the empirical relationship between inequality and happiness has been difficult to establish.
I would like to thank Ravi Kanbur, Tatiana Kornienko and, especially, Andrew Oswald for very helpful comments. Any errors
are mine. |
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Keywords: | Inequality Relative position Social preferences Tournaments Evolution |
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