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Which Inequality? The Inequality of Endowments versus the Inequality of Rewards

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  • Ed Hopkins
  • Tatiana Kornienko

Abstract

We introduce a new distinction between inequality in initial endowments (e.g., ability, inherited wealth) and inequality of what one can obtain as rewards (e.g., prestigious positions, money). We show that, when society allocates resources via tournaments, these two types of inequality have opposing effects on equilibrium behavior and well-being. Greater inequality of rewards hurts most people -- both the middle class and the poor -- who are forced into greater effort. Conversely, greater inequality of endowments benefits the middle class. Thus, the correctness of our intuitions about the implications of inequality is hugely affected by the type of inequality considered. (JEL D63, D82)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.3.106
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 2 (2010)
Issue (Month): 3 (August)
Pages: 106-37

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Handle: RePEc:aea:aejmic:v:2:y:2010:i:3:p:106-37

Note: DOI: 10.1257/mic.2.3.106
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References

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  1. James Konow, 2003. "Which Is the Fairest One of All? A Positive Analysis of Justice Theories," Journal of Economic Literature, American Economic Association, vol. 41(4), pages 1188-1239, December.
  2. Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics.
  3. Hopkins, Ed, 2008. "Inequality, Happiness and Relative Concerns: What Actually is their Relationship?," SIRE Discussion Papers 2008-01, Scottish Institute for Research in Economics (SIRE).
  4. Gary Charness & Matthew Rabin, 2003. "Understanding Social Preferences with Simple Tests," General Economics and Teaching 0303002, EconWPA.
  5. Schotter, Andrew & Weigelt, Keith, 1992. "Asymmetric Tournaments, Equal Opportunity Laws, and Affirmative Action: Some Experimental Results," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 511-39, May.
  6. Wing Suen, 2005. "The Comparative Statics of Differential Rents in Two-Sided Matching Markets," Departmental Working Papers _172, Chinese University of Hong Kong, Department of Economics.
  7. Robert M. Costrell & Glenn C. Loury, 2004. "Distribution of Ability and Earnings in a Hierarchical Job Assignment Model," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-135, Boston University - Department of Economics.
  8. Ed Hopkins & Tatiana Kornienko, 2004. "Running to Keep in the Same Place: Consumer Choice as a Game of Status," ESE Discussion Papers 92, Edinburgh School of Economics, University of Edinburgh.
  9. Konrad, Kai A., 2007. "Strategy in contests: an introduction," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, Social Science Research Center Berlin (WZB).
  10. Zenginobuz, Unal, 1996. "Concern for relative position, rank-order contests, and contributions to public goods," MPRA Paper 388, University Library of Munich, Germany.
  11. Brown, Gordon D. A. & Gardner, Jonathan & Oswald, Andrew J. & Qian, Jing, 2005. "Does Wage Rank Affect Employees' Wellbeing?," IZA Discussion Papers 1505, Institute for the Study of Labor (IZA).
  12. Mailath, George J, 1987. "Incentive Compatibility in Signaling Games with a Continuum of Types," Econometrica, Econometric Society, vol. 55(6), pages 1349-65, November.
  13. Gary S. Becker & Kevin M. Murphy & Ivan Werning, 2005. "The Equilibrium Distribution of Income and the Market for Status," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 282-310, April.
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Citations

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Cited by:
  1. Marjit, Sugata, 2012. "Conflicting Measures of Poverty and Inadequate Saving by the Poor," Working Paper Series UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).
  2. Ed Hopkins & Tatiana Kornienko, 2005. "Methods of Comparison in Games of Status," ESE Discussion Papers 138, Edinburgh School of Economics, University of Edinburgh.
  3. Ed Hopkins, 2006. "Job Market Signalling of Relative Position, or Becker Married to Spence," Levine's Bibliography 321307000000000553, UCLA Department of Economics.
  4. Marjit, Sugata & Mandal, Biswajit, 2011. "Conspicuous Consumption, Social Status and Measures of Poverty – An Example," MPRA Paper 33745, University Library of Munich, Germany, revised Apr 2011.
  5. Bilancini, Ennio & Boncinelli, Leonardo, 2012. "Redistribution and the notion of social status," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 651-657.
  6. Nikiforakis, Nikos & Noussair, Charles N. & Wilkening, Tom, 2012. "Normative conflict and feuds: The limits of self-enforcement," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 797-807.
  7. Ed Hopkins (University of Edinburgh) and V. Bhaskar (University College London), 2011. "Marriage as a Rat Race: Noisy Pre-Marital Investments with Assortative Matching," ESE Discussion Papers 210, Edinburgh School of Economics, University of Edinburgh.
  8. Marjit, Sugata & Roy, Ranjan, 2010. "Conflicting Measures of Poverty and Inadequate Saving by the Poor – The Role of Status Driven Utility Function," MPRA Paper 27472, University Library of Munich, Germany.
  9. Hopkins, Ed & Kornienko, Tatiana, 2009. "Status, affluence, and inequality: Rank-based comparisons in games of status," Games and Economic Behavior, Elsevier, vol. 67(2), pages 552-568, November.
  10. Marjit, Sugata & Santra, Sattwik & Hati, Koushik Kumar, 2014. "Does inequality affect the consumption patterns of the poor? – The role of “status seeking” behaviour," MPRA Paper 54118, University Library of Munich, Germany.
  11. Marcel Fafchamps & Bereket Kebede & Daniel John Zizzo, 2014. "Keep Up With the Winners: Experimental Evidence on Risk Taking, Asset Integration, and Peer Effects," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 14-03, School of Economics, University of East Anglia, Norwich, UK..
  12. Shang-Jin Wei & Xiaobo Zhang, 2011. "Sex Ratios, Entrepreneurship, and Economic Growth in the People’s Republic of China," NBER Working Papers 16800, National Bureau of Economic Research, Inc.
  13. Chang, Simon & Zhang, Xiaobo, 2012. "The Economic Consequences of Excess Men: Evidence from a Natural Experiment in Taiwan:," IFPRI discussion papers 1203, International Food Policy Research Institute (IFPRI).
  14. Sugata Marjit & Sattwik Santra & Koushik Kumar Hati, 2014. "Does inequality affect the consumption patterns of the poor? – The role of status seeking behaviour," Discussion Papers Series 514, School of Economics, University of Queensland, Australia.

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