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Inequality and growth: Some welfare calculations

  • Córdoba, Juan Carlos
  • Verdier, Geneviève

The main lotteries individuals face during their lifetime are country and family of birth. How much consumption growth would a newborn sacrifice to avoid these lotteries? We find that he may be willing to sacrifice a large fraction, if not all, to avoid them. Critical elements for the results are time discounting and risk aversion. Both reduce the effect of growth on welfare while risk aversion increases the benefits of more equal outcomes. Another key factor is the staggering size of risk at birth. Our calculations suggest a research agenda that treats growth and inequality as priorities.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 32 (2008)
Issue (Month): 6 (June)
Pages: 1812-1829

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Handle: RePEc:eee:dyncon:v:32:y:2008:i:6:p:1812-1829
Contact details of provider: Web page: http://www.elsevier.com/locate/jedc

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