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On the Inefficiency of Inequality

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  • Schiff, Maurice

    ()
    (World Bank)

Abstract

A number of studies have examined the implications of preference interdependence. This paper models utility as depending on other people’s consumption levels and shows that welfare declines with inequality, equilibrium inequality is inefficient, and the optimal intervention leads to a more equal distribution.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1283.

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Length: 11 pages
Date of creation: Sep 2004
Date of revision:
Handle: RePEc:iza:izadps:dp1283

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Keywords: inequality; efficiency;

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  1. Fehr, Ernst & Schmidt, Klaus M., 1999. "A theory of fairness, competition, and cooperation," Munich Reprints in Economics, University of Munich, Department of Economics 20650, University of Munich, Department of Economics.
  2. Alesina, Alberto F & Rodrik, Dani, 1991. "Distributive Politics and Economic Growth," CEPR Discussion Papers, C.E.P.R. Discussion Papers 565, C.E.P.R. Discussion Papers.
  3. John Y. Campbell & John H. Cochrane, 1995. "By Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," NBER Working Papers 4995, National Bureau of Economic Research, Inc.
  4. Galor, Oded & Zeira, Joseph, 1988. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 01 Sep 1989.
  5. Di Tella, Rafael & Alesina, Alberto & MacCulloch, Robert, 2004. "Inequality and Happiness: Are Europeans and Americans Different?," Scholarly Articles 4553007, Harvard University Department of Economics.
  6. Roland Benabou, 1996. "Inequality and Growth," NBER Working Papers 5658, National Bureau of Economic Research, Inc.
  7. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, American Economic Association, vol. 90(1), pages 166-193, March.
  8. Dayton-Johnson, Jeff & Bardhan, Pranab, 1996. "Inequality and Conservation on the Local Commons: A Theoretical Exercise," Center for International and Development Economics Research, Working Paper Series, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkele qt7f9913w9, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  9. Pollak, Robert A, 1976. "Interdependent Preferences," American Economic Review, American Economic Association, American Economic Association, vol. 66(3), pages 309-20, June.
  10. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, American Economic Association, vol. 84(3), pages 600-621, June.
  11. A. Abel, 2010. "Asset prices under habit formation and catching up with the Jones," Levine's Working Paper Archive 1395, David K. Levine.
  12. John Y. Campbell & John Cochrane, 1999. "Force of Habit: A Consumption-Based Explanation of Aggregate Stock Market Behavior," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 107(2), pages 205-251, April.
  13. Barro, Robert J, 2000. " Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, Springer, vol. 5(1), pages 5-32, March.
  14. Harald Uhlig & Lars Ljungqvist, 2000. "Tax Policy and Aggregate Demand Management under Catching Up with the Joneses," American Economic Review, American Economic Association, American Economic Association, vol. 90(3), pages 356-366, June.
  15. Robson, Arthur J, 1992. "Status, the Distribution of Wealth, Private and Social Attitudes to Risk," Econometrica, Econometric Society, Econometric Society, vol. 60(4), pages 837-57, July.
  16. Bill Dupor & Wen-Fang Liu, 2003. "Jealousy and Equilibrium Overconsumption," American Economic Review, American Economic Association, American Economic Association, vol. 93(1), pages 423-428, March.
  17. Abhijit Banerjee & Andrew F. Newman, 1989. "Risk-Bearing and the Theory of Income Distribution," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 877, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  18. Baland, J-M & Platteau, J-P, 1997. "Wealth Inequality and Efficiency in the Commons," Papers, Notre-Dame de la Paix, Sciences Economiques et Sociales 193, Notre-Dame de la Paix, Sciences Economiques et Sociales.
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Cited by:
  1. Gruen, Carola & Klasen, Stephan, 2012. "Has transition improved well-being?," Economic Systems, Elsevier, Elsevier, vol. 36(1), pages 11-30.

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