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Choices in Egalitarian Distribution: Inequality Aversion versus Risk Aversion

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  • Leima Davidovitz
  • Yoram Kroll
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    Abstract

    Inequality aversion and risk aversion are widely assumed features of economic models. But a review of the literature revealed that inequlity aversion and risk aversion are treated as separate variables. This paper presents exploratory research designed to separate inequality aversion from risk aversion. In a set of laboratory experiments, subjects chose between two alternatives with the same individuals risk, but different levels of egalitarianism. Thus, the choice of the more egalitarian alternative with constant risk level implies a higher level of inequality aversion. The experiment was conducted among 211 eight-year-old children, 107 of whom live on Kibbutz and 104 in the city. We found not significant difference between Kibbutz children and city children in inequality aversion.

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    File URL: http://sticerd.lse.ac.uk/dps/darp/darp43.pdf
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    Bibliographic Info

    Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Distributional Analysis Research Programme Papers with number 43.

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    Date of creation: Mar 1999
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    Handle: RePEc:cep:stidar:43

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    Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

    Related research

    Keywords: Inequality; income distribution; risk; experiments;

    References

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    1. Hanoch, G & Levy, Haim, 1969. "The Efficiency Analysis of Choices Involving Risk," Review of Economic Studies, Wiley Blackwell, vol. 36(107), pages 335-46, July.
    2. Nick Baigent & Wulf Gaertner, 1996. "Never choose the uniquely largest A Characterization," Economic Theory, Springer, vol. 8(2), pages 239-249.
    3. Michael Rothschild & Joseph E. Stiglitz, 1969. "Increasing Risk: A Definition and Its Economic Consequences," Cowles Foundation Discussion Papers 275, Cowles Foundation for Research in Economics, Yale University.
    4. Kroll, Yoram & Levy, Haim & Rapoport, Amnon, 1988. "Experimental Tests of the Separation Theorem and the Capital Asset Pricing Model," American Economic Review, American Economic Association, vol. 78(3), pages 500-519, June.
    5. Kachelmeier, Steven J & Shehata, Mohamed, 1992. "Examining Risk Preferences under High Monetary Incentives: Experimental Evidence from the People's Republic of China," American Economic Review, American Economic Association, vol. 82(5), pages 1120-41, December.
    6. Amiel, Yoram & Cowell, Frank A., 1992. "Measurement of income inequality : Experimental test by questionnaire," Journal of Public Economics, Elsevier, vol. 47(1), pages 3-26, February.
    7. Sen, Amartya, 1993. "Internal Consistency of Choice," Econometrica, Econometric Society, vol. 61(3), pages 495-521, May.
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    Cited by:
    1. Yoram Amiel & Frank A Cowell & Leima Davidovitz & Avraham Polovin, 2003. "Preference Reversals and the Analysis of Income Distributions," STICERD - Distributional Analysis Research Programme Papers 66, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    2. Fredrik Carlsson & Dinky Daruvala & Olof Johansson-Stenman, 2005. "Are People Inequality-Averse, or Just Risk-Averse?," Economica, London School of Economics and Political Science, vol. 72(3), pages 375-396, 08.
    3. Cowell, Frank A. & Schokkaert, Erik, 2001. "Risk perceptions and distributional judgments," European Economic Review, Elsevier, vol. 45(4-6), pages 941-952, May.

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