Many discrete life choices--where to live, what kind of job to hold, and consumption lifestyle--are stratified by income. Stratification and sorting often manifest state-dependent preferences in which the marginal utility of income (consumption) depends on the outcome of prior choices. For example, one can choose to live a quiet life in the country, where money buys few things, or can choose a more active and exciting lifestyle in a large city, where money has greater value because all kinds of goods are available to buy. The natural market equilibrium stratification is for rich people to live in the city, where their money has more value, and for poor people to live in the country, where money is less productive. But before location is chosen, the a priori von Neuman-Morgenstern utility function over both choices can take the Friedman-Savage form, providing pareto efficient social demands for inequality. If there is not enough inequality to produce the socially optimum stratification to begin with, inequality is socially manufactured. People voluntarily participate in gambles and lotteries in which the winners are rich and live in the exciting places and the losers are poor and choose the quiet life. There is a inequality.
(This abstract was borrowed from another version of this item.)
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Freeman, Scott, 1996. "Equilibrium Income Inequality among Identical Agents," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1047-64, October.
- Marshall, John M, 1984. "Gambles and the Shadow Price of Death," American Economic Review, American Economic Association, vol. 74(1), pages 73-86, March.
- William D. Nordhaus & James Tobin, 1971.
"Is Growth Obsolete?,"
Cowles Foundation Discussion Papers
319, Cowles Foundation for Research in Economics, Yale University.
- William D. Nordhaus & James Tobin, 1973. "Is Growth Obsolete?," NBER Chapters, in: The Measurement of Economic and Social Performance, pages 509-564 National Bureau of Economic Research, Inc.
- William D. Nordhaus & James Tobin, 1972. "Is Growth Obsolete?," NBER Chapters, in: Economic Research: Retrospect and Prospect, Volume 5, Economic Growth, pages 1-80 National Bureau of Economic Research, Inc.
- Gregory, Nathaniel, 1980. "Relative Wealth and Risk Taking: A Short Note on the Friedman-Savage Utility Function," Journal of Political Economy, University of Chicago Press, vol. 88(6), pages 1226-30, December.
When requesting a correction, please mention this item's handle: RePEc:ucp:jlabec:v:15:y:1997:i:2:p:189-96. 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: (Journals Division)
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 references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link 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 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.