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The Collective Risk of Inequality: a Social Dilemma calling for a Solution?

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  • Philipp Poppitz

    ()
    (University of Hamburg)

Abstract

In the aftermath of the financial crisis, attention concerning inequality as a risk factor has risen. Nevertheless studies, focusing on the implications of inequality as a collective risk, remain seldom. Therefore the following paper will discuss why inequality is indeed a collective risk, leading to a social dilemma as known from game theory. The first section examines the collective risks that emerge of disproportionate income distribution and social immobility - as two dimensions of inequality. The second section investigates how these inequalities and their resulting collective risks can remain persistent. Climate change as a risk factor, shares several features with the dynamics of inequality. This will be demonstrated, by applying the results of an experimental study on climate change on the afore mentioned discussion and analysing the implications of additional aspects as unequal initial endowments and strong reciprocity. The paper concludes that the contribution of individuals to lower inequality is highly dependent on the expected probability of risk. If the risk probability is not close to one, contributions are low and cannot reduce inequality substantially while risks remain persistent.

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File URL: http://www.wiso.uni-hamburg.de/repec/hepdoc/macppr_6_2011.pdf
File Function: First version, 2011
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Bibliographic Info

Paper provided by Hamburg University, Department Wirtschaft und Politik in its series Macroeconomics and Finance Series with number 201106.

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Length: 30 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:hep:macppr:201106

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Web page: http://www.wiso.uni-hamburg.de/dwp
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Keywords: Inequality; Social Mobility; Collective Risk; Snow Drift Game.;

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  1. Fehr, Ernst & Schmidt, Klaus M., 1998. "A Theory of Fairness, Competition and Cooperation," CEPR Discussion Papers 1812, C.E.P.R. Discussion Papers.
  2. Christopher D Carroll, 1997. "Why Do the Rich Save So Much?," Economics Working Paper Archive 388, The Johns Hopkins University,Department of Economics.
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  8. Martin Beckenkamp, 2006. "A game-theoretic taxonomy of social dilemmas," Central European Journal of Operations Research, Springer, vol. 14(3), pages 337-353, September.
  9. Piketty, Thomas, 2000. "Theories of persistent inequality and intergenerational mobility," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 8, pages 429-476 Elsevier.
  10. Kaul, Inge & Grunberg, Isabelle & Stern, Marc (ed.), 1999. "Global Public Goods: International Cooperation in the 21st Century," OUP Catalogue, Oxford University Press, number 9780195130522, September.
  11. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
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