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Inequality and Growth: Some Welfare Calculations

  • Cordoba, Juan Carlos
  • Verdier, Genevieve

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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Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers Archive with number 32119.

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Date of creation: 16 Nov 2010
Date of revision:
Publication status: Published in Journal of Economic Dynamics and Control, June 2008, vol. 32 no. 6, pp. 1812-1829
Handle: RePEc:isu:genres:32119
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Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070

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