Inequality, Inequity Aversion, and the Provision of Public Goods
AbstractWe investigate the effects of inequality in wealth on the incentives to contribute to a public good when agents are inequity averse and may differ in ability. We show that equality may lead to a reduction of public good provision below levels generated by purely selfish agents. But introducing inequality motivates more productive agents to exert higher efforts and help the group to coordinate on equilibria with less free-riding. As a result, less able agents may benefit from initially disadvantageous inequality. Moreover, the more inequity averse the agents, the more inequality should be imposed even by an egalitarian social planner.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5514.
Length: 34 pages
Date of creation: Feb 2011
Date of revision:
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Find related papers by JEL classification:
- H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-02-26 (All new papers)
- NEP-CBE-2011-02-26 (Cognitive & Behavioural Economics)
- NEP-PBE-2011-02-26 (Public Economics)
- NEP-PUB-2011-02-26 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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