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An Extension to the Model of Inequity Aversion by Fehr and Schmidt

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Author Info
Ottone, Stefania ()
Ponzano, Ferruccio ()

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Abstract

The aim of this paper is to improve on the model by Fehr and Schmidt (1999) by developing a non-linear model (that leads to interior rather than corner solutions) and by taking into account that different levels of income imply different reactions of fair-minded people. We suggest to modify the inequity-aversion utility function proposed by Fehr and Schmidt by taking into account not only the difference between players' payoffs, but also their absolute value. This allows for a non-linear utility function where different stakes lead to different unique optimal interior solutions.

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File URL: http://polis.unipmn.it/pubbl/RePEc/uca/ucapdv/ottone58.pdf
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Publisher Info
Paper provided by Department of Public Policy and Public Choice - POLIS in its series P.O.L.I.S. department's Working Papers with number 51.

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Length: 32 pages
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:uca:ucapdv:51

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Find related papers by JEL classification:
A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
D64 - Microeconomics - - Welfare Economics - - - Altruism

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  1. Marchese, Carla, 2006. "Rewarding the consumer for curbing the evasion of commodity taxes?," P.O.L.I.S. department's Working Papers 72, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  2. Ramello, Giovanni B. & Silva, Francesco, 2006. "Appropriating signs and meaning: The elusive economics of trademark," P.O.L.I.S. department's Working Papers 70, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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  3. Marchese, Carla & Privileggi, Fabio, 2007. "Increasing the efficiency of the 'Studi di Settore' might backfire," P.O.L.I.S. department's Working Papers 83, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  4. Ottone, Stefania & Ponzano, Ferruccio & Ricciuti, Roberto, 2007. "Simulating voting rule reforms for the Italian parliament. An economic perspective," P.O.L.I.S. department's Working Papers 88, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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  5. Ottone, Stefania, 2007. "Are people samaritans or avengers?," P.O.L.I.S. department's Working Papers 77, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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  6. Migheli, Matteo, 2009. "Assessing trust through social capital? A possible experimental answer," P.O.L.I.S. department's Working Papers 119, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  7. Cugno, Franco & Ottoz, Elisabetta, 2006. "Static inefficiency of compulsory licensing: Quantity vs. price competition," P.O.L.I.S. department's Working Papers 73, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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  8. Bissey, Marie-Edith & Ortona, Guido, 2007. "The program for the simulation of electoral systems ALEX4.1: what it does and how to use it," P.O.L.I.S. department's Working Papers 82, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  9. Nicita, Antonio & Ramello, Giovanni B., 2006. "Property, liability and market power: The antitrust side of copyright," P.O.L.I.S. department's Working Papers 75, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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  10. Ramello, Giovanni, 2006. "What's in a sign? Trademark law and enconomic theory," P.O.L.I.S. department's Working Papers 67, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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  11. Hayat Khan, 2009. "Modeling Social Preferences: A Generalized Model of Inequity Aversion," EERI Research Paper Series EERI_RP_2009_21, Economics and Econometrics Research Institute (EERI). [Downloadable!]
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