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Inequality Aversion and Risk Attitudes

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  • Ferrer-i-Carbonell, Ada

    ()
    (IAE Barcelona (CSIC))

  • Ramos, Xavi

    ()
    (Universitat Autònoma de Barcelona)

Abstract

Using self reported measures of life satisfaction and risk attitudes, we empirically test whether there is a relationship between individuals inequality and risk aversion. The empirical analysis uses the German SOEP household panel for the years 1997 to 2007 to conclude that the negative effect of inequality measured by the sample gini coefficient by year and federal state is larger for those individuals who report to be less willing to take risks. Nevertheless, the empirical results suggest that even though inequality and risk aversion are related, they are not the same thing. The paper shows that the relationship between risk attitudes and inequality aversion survives the inclusion of individual characteristics (i.e. income, education, and gender) that may be correlated with both risk attitudes and inequality aversion.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4703.

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Length: 29 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:iza:izadps:dp4703

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Keywords: happiness; inequality aversion; risk attitudes; well-being;

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References

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  1. Bénabou, Roland & Ok, Efe, 1997. "Social Mobility and the Demand for Redistribution : the POUM Hypothesis," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 78, Institut d'Économie Industrielle (IDEI), Toulouse, revised 1999.
  2. Alberto Alesina & George-Marios Angeletos, 2005. "Fairness and Redistribution," American Economic Review, American Economic Association, American Economic Association, vol. 95(4), pages 960-980, September.
  3. Yoram Kroll & Liema Davidovitz, 2003. "Inequality Aversion versus Risk Aversion," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 70(277), pages 19-29, February.
  4. Alberto Alesina & Eliana La Ferrara, 2001. "Preferences for Redistribution in the Land of Opportunities," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1936, Harvard - Institute of Economic Research.
  5. Alberto Alesina & Rafael Di Tella & Robert MacCulloch, 2001. "Inequality and Happiness: Are Europeans and Americans Different?," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1938, Harvard - Institute of Economic Research.
  6. Fredrik Carlsson & Dinky Daruvala & Olof Johansson-Stenman, 2005. "Are People Inequality-Averse, or Just Risk-Averse?," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 72(3), pages 375-396, 08.
  7. Dohmen, Thomas & Falk, Armin & Huffman, David B. & Sunde, Uwe & Schupp, Jürgen & Wagner, Gert G., 2005. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," IZA Discussion Papers 1730, Institute for the Study of Labor (IZA).
  8. Geoffrey Brennan & Werner Güth & Luis G. Gonzalez & M. Vittoria Levati, 2005. "Attitudes toward Private and Collective Risks in Individual and Strategic Choice Situations," Papers on Strategic Interaction, Max Planck Institute of Economics, Strategic Interaction Group 2005-22, Max Planck Institute of Economics, Strategic Interaction Group.
  9. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP): Scope, Evolution and Enhancements," SOEPpapers on Multidisciplinary Panel Data Research 1, DIW Berlin, The German Socio-Economic Panel (SOEP).
  10. Ravallion, Martin & Lokshin, Michael, 2000. "Who wants to redistribute?: The tunnel effect in 1990s Russia," Journal of Public Economics, Elsevier, Elsevier, vol. 76(1), pages 87-104, April.
  11. Alesina, Alberto & Giuliano, Paola, 2009. "Preferences for Redistribution," IZA Discussion Papers 4056, Institute for the Study of Labor (IZA).
  12. Cowell, Frank A. & Schokkaert, Erik, 2001. "Risk perceptions and distributional judgments," European Economic Review, Elsevier, Elsevier, vol. 45(4-6), pages 941-952, May.
  13. Andrew E. Clark & Paul Frijters & Michael A. Shields, 2008. "Relative Income, Happiness, and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 46(1), pages 95-144, March.
  14. Irena Grosfeld & Claudia Senik, 2010. "The emerging aversion to inequality," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 18(1), pages 1-26, 01.
  15. La Ferrara, Eliana & Alesina, Alberto, 2005. "Preferences for Redistribution in the Land of Opportunities," Scholarly Articles 4552533, Harvard University Department of Economics.
  16. Ada Ferrer-i-Carbonell & Paul Frijters, 2002. "How important is Methodology for the Estimates of the Determinants of Happiness?," Tinbergen Institute Discussion Papers 02-024/3, Tinbergen Institute.
  17. Terza, Joseph V., 1987. "Estimating linear models with ordinal qualitative regressors," Journal of Econometrics, Elsevier, Elsevier, vol. 34(3), pages 275-291, March.
  18. Schwarze, Johannes & Harpfer, Marco, 2007. "Are people inequality averse, and do they prefer redistribution by the state?: Evidence from German longitudinal data on life satisfaction," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 36(2), pages 233-249, April.
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Citations

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Cited by:
  1. Olaf Hübler, 2013. "Are Tall People Less Risk Averse Than Others?," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, Duncker & Humblot, Berlin, vol. 133(1), pages 23-42.
  2. Clark, Andrew E. & D'Ambrosio, Conchita, 2014. "Attitudes to Income Inequality: Experimental and Survey Evidence," IZA Discussion Papers 8136, Institute for the Study of Labor (IZA).
  3. Schaeffer, Y. & Charlot, S., 2012. "Inequality aversion, income redistribution and economic geography," Working Papers, Grenoble Applied Economics Laboratory (GAEL) 201204, Grenoble Applied Economics Laboratory (GAEL).
  4. Celse, Jérémy, 2012. "Is the positional bias an artefact? Distinguishing positional concerns from egalitarian concerns," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 41(3), pages 277-283.
  5. Ada Ferrer-i-carbonell & Ramos, X. (Xavier), 2012. "GINI DP 38: Inequality and Happiness: A Survey," GINI Discussion Papers, AIAS, Amsterdam Institute for Advanced Labour Studies 38, AIAS, Amsterdam Institute for Advanced Labour Studies.
  6. Tamas Hajdu & Gabor Hajdu, 2013. "Are more equal societies happier? Subjective well-being, income inequality, and redistribution," IEHAS Discussion Papers, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences 1320, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  7. Vitezslav Babicky & Andreas Ortmann & Silvester Van Koten, 2010. "Fairness in Risky Environments: Theory and Evidence," CERGE-EI Working Papers wp419, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  8. Abigail Mcknight & Brian Nolan, 2012. "GINI Intermediate Report WP 4: Social Impacts of Inequalities," GINI Discussion Papers, AIAS, Amsterdam Institute for Advanced Labour Studies wp4, AIAS, Amsterdam Institute for Advanced Labour Studies.
  9. repec:aia:ginidp:dp38 is not listed on IDEAS
  10. Ada Ferrer-i-Carbonell, 2013. "Happiness economics," SERIEs, Spanish Economic Association, Spanish Economic Association, vol. 4(1), pages 35-60, March.

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