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Inequality, happiness and relative concerns: What actually is their relationship?

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This paper briefly and informally surveys different theoretical models of relative concerns and their relation to inequality. Models of inequity aversion in common use in experimental economics imply a negative relation between inequality and happiness. In contrast, empirical studies on happiness typically employ models of relative concerns that assume that increases in others’ income always have a negative effect on own happiness. However, in these latter models, the relation between inequality and happiness can be positive. One possible solution is a rivalry model where a distinction is made between endowment and reward inequality which have respectively a negative and positive effect on happiness. These different models and their contrasting results may clarify why the empirical relationship between inequality and happiness has been difficult to establish.

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File URL: http://hdl.handle.net/10.1007/s10888-008-9081-4
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Article provided by Springer & Society for the Study of Economic Inequality in its journal The Journal of Economic Inequality.

Volume (Year): 6 (2008)
Issue (Month): 4 (December)
Pages: 351-372

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Handle: RePEc:kap:jecinq:v:6:y:2008:i:4:p:351-372
DOI: 10.1007/s10888-008-9081-4
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