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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. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde & Juergen Schupp & Gert Wagner, 2005. "Individual Risk Attitudes: New Evidence from a Large, Representative, Experimentally-Validated Survey," Working Papers 2096, The Field Experiments Website.
  2. Terza, Joseph V., 1987. "Estimating linear models with ordinal qualitative regressors," Journal of Econometrics, Elsevier, vol. 34(3), pages 275-291, March.
  3. Alberto Alesina & George-Marios Angeletos, 2004. "Fairness and Redistribution," Levine's Bibliography 122247000000000283, UCLA Department of Economics.
  4. Ravallion, Martin & Lokshin, Michael, 2000. "Who wants to redistribute?: The tunnel effect in 1990s Russia," Journal of Public Economics, Elsevier, vol. 76(1), pages 87-104, April.
  5. Alesina, Alberto & Di Tella, Rafael & MacCulloch, Robert, 2004. "Inequality and happiness: are Europeans and Americans different?," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 2009-2042, August.
  6. Bénabou, Roland & Ok, Efe, 1997. "Social Mobility and the Demand for Redistribution : the POUM Hypothesis," IDEI Working Papers 78, Institut d'Économie Industrielle (IDEI), Toulouse, revised 1999.
  7. Alesina, Alberto & Giuliano, Paola, 2009. "Preferences for Redistribution," IZA Discussion Papers 4056, Institute for the Study of Labor (IZA).
  8. Clark, Andrew E. & Frijters, Paul & Shields, Michael A., 2007. "Relative Income, Happiness and Utility: An Explanation for the Easterlin Paradox and Other Puzzles," IZA Discussion Papers 2840, Institute for the Study of Labor (IZA).
  9. Irena Grosfeld & Claudia Senik, 2010. "The emerging aversion to inequality," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 18(1), pages 1-26, 01.
  10. La Ferrara, Eliana & Alesina, Alberto, 2005. "Preferences for Redistribution in the Land of Opportunities," Scholarly Articles 4552533, Harvard University Department of Economics.
  11. Carlsson, Fredrik & Daruvala, Dinky & Johansson-Stenman, Olof, 2001. "Are People Inequality Averse Or Just Risk Averse?," Working Papers in Economics 43, University of Gothenburg, Department of Economics.
  12. Gert G. Wagner & Joachim R. Frick & Jürgen Schupp, 2007. "The German Socio-Economic Panel Study (SOEP) – Scope, Evolution and Enhancements," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, vol. 127(1), pages 139-169.
  13. Yoram Kroll & Liema Davidovitz, 2003. "Inequality Aversion versus Risk Aversion," Economica, London School of Economics and Political Science, vol. 70(277), pages 19-29, February.
  14. Alberto Alesina & Eliana La Ferrara, 2001. "Preferences for Redistribution in the Land of Opportunities," NBER Working Papers 8267, National Bureau of Economic Research, Inc.
  15. 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, vol. 36(2), pages 233-249, April.
  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. Cowell, Frank A. & Schokkaert, Erik, 2001. "Risk perceptions and distributional judgments," European Economic Review, Elsevier, vol. 45(4-6), pages 941-952, May.
  18. 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 2005-22, Max Planck Institute of Economics, Strategic Interaction Group.
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Citations

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Cited by:
  1. Andrew E. Clark & Conchita D'Ambrosio, 2014. "Attitudes to Income Inequality: Experimental and Survey Evidence," PSE Working Papers halshs-00967938, HAL.
  2. Ada Ferrer-i-Carbonell, 2013. "Happiness economics," SERIEs, Spanish Economic Association, vol. 4(1), pages 35-60, March.
  3. Ada Ferrer-i-carbonell & Ramos, X. (Xavier), 2012. "GINI DP 38: Inequality and Happiness: A Survey," GINI Discussion Papers 38, AIAS, Amsterdam Institute for Advanced Labour Studies.
  4. Silvester Van Koten & Andreas Ortmann & Vitezslav Babicky, 2013. "Fairness in Risky Environments: Theory and Evidence," Games, MDPI, Open Access Journal, vol. 4(2), pages 208-242, May.
  5. Olaf Hübler, 2012. "Are Tall People Less Risk Averse than Others?," SOEPpapers on Multidisciplinary Panel Data Research 457, DIW Berlin, The German Socio-Economic Panel (SOEP).
  6. Abigail Mcknight & Brian Nolan, 2012. "GINI Intermediate Report WP 4: Social Impacts of Inequalities," GINI Discussion Papers wp4, AIAS, Amsterdam Institute for Advanced Labour Studies.
  7. repec:aia:ginidp:dp38 is not listed on IDEAS
  8. Schaeffer, Y. & Charlot, S., 2012. "Inequality aversion, income redistribution and economic geography," Working Papers 201204, Grenoble Applied Economics Laboratory (GAEL).
  9. 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, vol. 41(3), pages 277-283.
  10. Tamas Hajdu & Gabor Hajdu, 2013. "Are more equal societies happier? Subjective well-being, income inequality, and redistribution," IEHAS Discussion Papers 1320, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.

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