IDEAS home Printed from https://ideas.repec.org/a/aea/aejmic/v2y2010i3p106-37.html
   My bibliography  Save this article

Which Inequality? The Inequality of Endowments versus the Inequality of Rewards

Author

Listed:
  • Ed Hopkins
  • Tatiana Kornienko

Abstract

We introduce a new distinction between inequality in initial endowments (e.g., ability, inherited wealth) and inequality of what one can obtain as rewards (e.g., prestigious positions, money). We show that, when society allocates resources via tournaments, these two types of inequality have opposing effects on equilibrium behavior and well-being. Greater inequality of rewards hurts most people -- both the middle class and the poor -- who are forced into greater effort. Conversely, greater inequality of endowments benefits the middle class. Thus, the correctness of our intuitions about the implications of inequality is hugely affected by the type of inequality considered. (JEL D63, D82)

Suggested Citation

  • Ed Hopkins & Tatiana Kornienko, 2010. "Which Inequality? The Inequality of Endowments versus the Inequality of Rewards," American Economic Journal: Microeconomics, American Economic Association, vol. 2(3), pages 106-137, August.
  • Handle: RePEc:aea:aejmic:v:2:y:2010:i:3:p:106-37 Note: DOI: 10.1257/mic.2.3.106
    as

    Download full text from publisher

    File URL: http://www.aeaweb.org/articles.php?doi=10.1257/mic.2.3.106
    Download Restriction: Access to full text is restricted to AEA members and institutional subscribers.

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Charness, Gary & haruvy, Ernan & Sonsino, Doron, 2001. "Social Distance and Reciprocity: The Internet vs. the Laboratory," University of California at Santa Barbara, Economics Working Paper Series qt3dt073wb, Department of Economics, UC Santa Barbara.
    2. Gary Charness & Matthew Rabin, 2002. "Understanding Social Preferences with Simple Tests," The Quarterly Journal of Economics, Oxford University Press, pages 817-869.
    3. Wing Suen, 2007. "The comparative statics of differential rents in two-sided matching markets," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, pages 149-158.
    4. Konrad, Kai A., 2007. "Strategy in contests: an introduction
      [Strategie in Turnieren – eine Einführung]
      ," Discussion Papers, Research Unit: Market Processes and Governance SP II 2007-01, Social Science Research Center Berlin (WZB).
    5. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 817-868.
    6. Angus Deaton, 2003. "Health, Inequality, and Economic Development," Journal of Economic Literature, American Economic Association, pages 113-158.
    7. Brown, Gordon D. A. & Gardner, Jonathan & Oswald, Andrew J. & Qian, Jing, 2005. "Does Wage Rank Affect Employees' Wellbeing?," IZA Discussion Papers 1505, Institute for the Study of Labor (IZA).
    8. Ed Hopkins, 2012. "Job Market Signaling Of Relative Position, Or Becker Married To Spence," Journal of the European Economic Association, European Economic Association, vol. 10(2), pages 290-322, April.
    9. Postlewaite, Andrew, 1998. "The social basis of interdependent preferences," European Economic Review, Elsevier, pages 779-800.
    10. Atkeson, Andrew & Rios-Rull, Jose-Victor, 1996. "The balance of payments and borrowing constraints: An alternative view of the Mexican crisis," Journal of International Economics, Elsevier, pages 331-349.
    11. Alesina, Alberto & Di Tella, Rafael & MacCulloch, Robert, 2004. "Inequality and happiness: are Europeans and Americans different?," Journal of Public Economics, Elsevier, pages 2009-2042.
    12. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, pages 101-116.
    13. Andrew Schotter & Keith Weigelt, 1992. "Asymmetric Tournaments, Equal Opportunity Laws, and Affirmative Action: Some Experimental Results," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 511-539.
    14. Ed Hopkins, 2008. "Inequality, happiness and relative concerns: What actually is their relationship?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, pages 351-372.
    15. Phelps Brown, Henry, 1988. "Egalitarianism and the Generation of Inequality," OUP Catalogue, Oxford University Press, number 9780198286486.
    16. James Konow, 2003. "Which Is the Fairest One of All? A Positive Analysis of Justice Theories," Journal of Economic Literature, American Economic Association, pages 1188-1239.
    17. Ed Hopkins, 2008. "Inequality, happiness and relative concerns: What actually is their relationship?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, pages 351-372.
    18. Cole, Harold L. & Mailath, George J. & Postlewaite, Andrew, 1998. "Class systems and the enforcement of social norms," Journal of Public Economics, Elsevier, pages 5-35.
    19. Gary S. Becker & Kevin M. Murphy & Ivan Werning, 2005. "The Equilibrium Distribution of Income and the Market for Status," Journal of Political Economy, University of Chicago Press, vol. 113(2), pages 282-310, April.
    20. Cole, Harold L & Mailath, George J & Postlewaite, Andrew, 1992. "Social Norms, Savings Behavior, and Growth," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1092-1125, December.
    21. Robert M. Costrell & Glenn C. Loury, 2004. "Distribution of Ability and Earnings in a Hierarchical Job Assignment Model," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1322-1363, December.
    22. Raquel Fernández & Jordi Gali, 1999. "To Each According to …? Markets, Tournaments, and the Matching Problem with Borrowing Constraints," Review of Economic Studies, Oxford University Press, vol. 66(4), pages 799-824.
    23. Cole, Harold L. & Mailath, George J. & Postlewaite, Andrew, 1998. "Class systems and the enforcement of social norms," Journal of Public Economics, Elsevier, pages 5-35.
    24. Corneo, Giacomo & Jeanne, Olivier, 1997. "On relative wealth effects and the optimality of growth," Economics Letters, Elsevier, vol. 54(1), pages 87-92, January.
    25. Ed Hopkins & Tatiana Kornienko, 2004. "Running to Keep in the Same Place: Consumer Choice as a Game of Status," American Economic Review, American Economic Association, pages 1085-1107.
    26. Zenginobuz, Unal, 1996. "Concern for relative position, rank-order contests, and contributions to public goods," MPRA Paper 388, University Library of Munich, Germany.
    27. Moldovanu, Benny & Sela, Aner, 2006. "Contest architecture," Journal of Economic Theory, Elsevier, vol. 126(1), pages 70-96, January.
    28. Ed Hopkins & Tatiana Kornienko, 2004. "Running to Keep in the Same Place: Consumer Choice as a Game of Status," American Economic Review, American Economic Association, pages 1085-1107.
    29. Robert Frank, 2000. "Does Growing Inequality Harm the Middle Class?," Eastern Economic Journal, Eastern Economic Association, vol. 26(3), pages 253-264, Summer.
    30. Mailath, George J, 1987. "Incentive Compatibility in Signaling Games with a Continuum of Types," Econometrica, Econometric Society, vol. 55(6), pages 1349-1365, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ed Hopkins, 2012. "Job Market Signaling Of Relative Position, Or Becker Married To Spence," Journal of the European Economic Association, European Economic Association, vol. 10(2), pages 290-322, April.
    2. Hopkins, Ed & Kornienko, Tatiana, 2009. "Status, affluence, and inequality: Rank-based comparisons in games of status," Games and Economic Behavior, Elsevier, vol. 67(2), pages 552-568, November.
    3. V. Bhaskar & Ed Hopkins, 2016. "Marriage as a Rat Race: Noisy Premarital Investments with Assortative Matching," Journal of Political Economy, University of Chicago Press, pages 992-1045.
    4. Ed Hopkins, 2011. "Inequality and Risk-Taking Behaviour," ESE Discussion Papers 204, Edinburgh School of Economics, University of Edinburgh.
    5. Fafchamps, Marcel & Kebede, Bereket & Zizzo, Daniel John, 2015. "Keep up with the winners: Experimental evidence on risk taking, asset integration, and peer effects," European Economic Review, Elsevier, vol. 79(C), pages 59-79.
    6. Marjit, Sugata & Roy, Ranjan, 2010. "Conflicting Measures of Poverty and Inadequate Saving by the Poor – The Role of Status Driven Utility Function," MPRA Paper 27472, University Library of Munich, Germany.
    7. Lam, W., 2015. "Status in Organizations," CORE Discussion Papers 2015033, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Sugata Marjit & Sattwik Santra & Koushik Kumar Hati, 2014. "Does inequality affect the consumption patterns of the poor? – The role of status seeking behaviour," Discussion Papers Series 514, School of Economics, University of Queensland, Australia.
    9. Marjit, Sugata & Santra, Sattwik & Hati, Koushik Kumar, 2014. "Does inequality affect the consumption patterns of the poor? – The role of “status seeking” behaviour," MPRA Paper 54118, University Library of Munich, Germany.
    10. Shang-Jin Wei & Xiaobo Zhang, 2011. "Sex Ratios, Entrepreneurship, and Economic Growth in the People's Republic of China," NBER Working Papers 16800, National Bureau of Economic Research, Inc.
    11. repec:unu:wpaper:wp2012-58 is not listed on IDEAS
    12. Filippo Altissimo & Riccardo Cristadoro & Mario Forni & Marco Lippi & Giovanni Veronese, 2010. "New Eurocoin: Tracking Economic Growth in Real Time," The Review of Economics and Statistics, MIT Press, pages 1024-1034.
    13. Sugata Marjit & Arijit Mukherjee & Koushik Kumar Hati, 2015. "Relative Social Status and Conflicting Measures of Poverty: A Behavioural Analytical Model," Discussion Papers 2015-02, University of Nottingham, GEP.
    14. Marjit, Sugata, 2012. "Conflicting Measures of Poverty and Inadequate Saving by the Poor," WIDER Working Paper Series 058, World Institute for Development Economic Research (UNU-WIDER).
    15. Nikiforakis, Nikos & Noussair, Charles N. & Wilkening, Tom, 2012. "Normative conflict and feuds: The limits of self-enforcement," Journal of Public Economics, Elsevier, pages 797-807.
    16. Marjit, Sugata & Mandal, Biswajit, 2011. "Conspicuous Consumption, Social Status and Measures of Poverty – An Example," MPRA Paper 33745, University Library of Munich, Germany, revised Apr 2011.
    17. Ed Hopkins & Tatiana Kornienko, 2006. "Methods of Comparison in Games of Status," ESE Discussion Papers 138, Edinburgh School of Economics, University of Edinburgh.
    18. Chang, Simon & Zhang, Xiaobo, 2012. "The Economic Consequences of Excess Men: Evidence from a Natural Experiment in Taiwan:," IFPRI discussion papers 1203, International Food Policy Research Institute (IFPRI).
    19. Bilancini, Ennio & Boncinelli, Leonardo, 2012. "Redistribution and the notion of social status," Journal of Public Economics, Elsevier, pages 651-657.

    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aea:aejmic:v:2:y:2010:i:3:p:106-37. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jane Voros) or (Michael P. Albert). General contact details of provider: http://edirc.repec.org/data/aeaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.