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

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  • 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
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. 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.
    2. repec:eee:gamebe:v:107:y:2018:i:c:p:316-328 is not listed on IDEAS
    3. 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.
    4. 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.
    5. repec:unu:wpaper:wp2012-58 is not listed on IDEAS
    6. V. Bhaskar & Ed Hopkins, 2016. "Marriage as a Rat Race: Noisy Premarital Investments with Assortative Matching," Journal of Political Economy, University of Chicago Press, vol. 124(4), pages 992-1045.
    7. 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.
    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. Lam, W., 2015. "Status in Organizations," CORE Discussion Papers 2015033, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    10. Ed Hopkins & Tatiana Kornienko, 2006. "Methods of Comparison in Games of Status," ESE Discussion Papers 138, Edinburgh School of Economics, University of Edinburgh.
    11. 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.
    12. 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).
    13. 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.
    14. Bilancini, Ennio & Boncinelli, Leonardo, 2012. "Redistribution and the notion of social status," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 651-657.
    15. 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).
    16. Nikiforakis, Nikos & Noussair, Charles N. & Wilkening, Tom, 2012. "Normative conflict and feuds: The limits of self-enforcement," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 797-807.
    17. 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.
    18. Ed Hopkins, 2011. "Inequality and Risk-Taking Behaviour," ESE Discussion Papers 204, Edinburgh School of Economics, University of Edinburgh.
    19. Sugata Marjit & Lei Yang, 2015. "Accumulation with Malnutrition - The Role of Status Seeking Behavior," Discussion Papers Series 544, School of Economics, University of Queensland, Australia.

    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

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