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Inequality aversion and externalities

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  • Gürtler, Marc
  • Gürtler, Oliver

Abstract

We conduct a general analysis of the effects of inequality aversion on decisions by homogeneous players in static and dynamic games. We distinguish between direct and indirect effects of inequality aversion. Direct effects are present when a player changes his action to affect disutility caused by inequality. Indirect effects occur when the own action is changed to affect other players' actions. We provide necessary and sufficient conditions for the occurrence of either effect. Moreover, we examine the direction of the effects. Whereas indirect effects induce players to internalize externalities they impose on others, direct effects act in the opposite direction. --

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Bibliographic Info

Paper provided by Technische Universität Braunschweig, Institute of Finance in its series Working Papers with number IF36V1.

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Date of creation: 2011
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Handle: RePEc:zbw:tbsifw:if36v1

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Web page: http://www.fiwi.tu-bs.de/
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Keywords: inequality aversion; externalities; direct effects; indirect effects;

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Cited by:
  1. Ellen P. Green, 2012. "Payment Mechanisms in the Healthcare Industry: An Experimental Study of Physician Incentives in a Multiple Principal Agent Setting," Working Papers 12-11, University of Delaware, Department of Economics.

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