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Distribution of Wealth and Interdependent Preferences

  • Grodner, Andrew


    (East Carolina University)

  • Kniesner, Thomas J.


    (Claremont Graduate University)

We examine the socially optimal wealth distribution in a two-person two-good model with heterogeneous workers and asymmetric social interactions where only one (social) individual derives positive or negative utility from the leisure of the other (non-social) individual. We show that the interdependence can effectively counter-act the need to transfer wealth to low-wage individuals and may require them to be poorer by all objective measures. We demonstrate that in the presence of social interactions it can be socially desirable to keep substantial wealth inequality.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3684.

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Length: 18 pages
Date of creation: Sep 2008
Date of revision:
Publication status: published in: Foundations and Trends in Microeconomics, 2010, 6 (4), 265-366
Handle: RePEc:iza:izadps:dp3684
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  1. Bernheim, B Douglas & Stark, Oded, 1988. "Altruism within the Family Reconsidered: Do Nice Guys Finish Last?," American Economic Review, American Economic Association, vol. 78(5), pages 1034-45, December.
  2. Mariacristina De Nardi, 2002. "Wealth inequality and intergenerational links," Staff Report 314, Federal Reserve Bank of Minneapolis.
  3. Brent Kreider, 2003. "Income Uncertainty and Optimal Redistribution," Southern Economic Journal, Southern Economic Association, vol. 69(3), pages 718-725, January.
  4. Alberto Alesina & Eliana La Ferrara, . "Preferences for Redistribution in the Land of Opportunities," Working Papers 178, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  5. Peter Kooreman & Lambert Schoonbeek, 2004. "Characterizing Pareto Improvements in an Interdependent Demand System," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 6(3), pages 427-443, 08.
  6. Andrzej Grodner & Thomas J. Kniesner, 2003. "Social Interaction in Labor Supply," Center for Policy Research Working Papers 51, Center for Policy Research, Maxwell School, Syracuse University.
  7. Brock,W.A. & Durlauf,S.N., 2000. "Discrete choice with social interactions," Working papers 7, Wisconsin Madison - Social Systems.
  8. Uri Possen & Pierre Pestieau & Steven Slutsky, 2002. "Randomization, revelation, and redistribution in a Lerner world," Economic Theory, Springer, vol. 20(3), pages 539-553.
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