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Aversion to Inequality and Segregating Equilibria

  • Cabrales Goitia Antonio



  • Calvó-Armengol Antoni



This working paper shows that models where preferences of individuals depend not only on their allocations, but also on the well-being of other persons, can produce both large and testable effects. We study the allocation to firms of workers with heterogeneous productivities to firms. We show that even small deviations from purely selfish preferences lead to widespread workplace skill segregation. This result holds for a broad class and distribution of social preferences. That is, workers of different abilities tend to work in different firms, as long as they care somewhat more about the utilities of workers who are close.

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Paper provided by Fundacion BBVA / BBVA Foundation in its series Working Papers with number 201083.

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Length: 31
Date of creation: Jul 2007
Date of revision:
Handle: RePEc:fbb:wpaper:201083
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  1. Michael Kremer & Eric Maskin, 1996. "Wage Inequality and Segregation by Skill," NBER Working Papers 5718, National Bureau of Economic Research, Inc.
  2. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
  3. Antonio Cabrales & Antoni Calv�-Armengol & Nicola Pavoni, 2008. "Social Preferences, Skill Segregation, and Wage Dynamics," Review of Economic Studies, Oxford University Press, vol. 75(1), pages 65-98.
  4. de Bartolome, Charles A M, 1990. "Equilibrium and Inefficiency in a Community Model with Peer Group Effects," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 110-33, February.
  5. Pedro Rey Biel, 2004. "Inequity aversion and team incentives," Microeconomics 0407009, EconWPA.
  6. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
  7. Fershtman, C. & Weiss, Y. & Hvide, H.K., 2001. "Status Concerns and the Organization of Work," Papers 2001-2, Tel Aviv.
  8. repec:bla:restud:v:75:y:2008:i:1:p:65-98 is not listed on IDEAS
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