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Who cares about relative deprivation ?

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  • Ravallion, Martin
  • Lokshin, Michael

Abstract

Theories of relative deprivation predict negative welfare effects when friends and neighbors become better-off. Other theories point to likely positive benefits. The authors encompass both views within a single model, which motivates their tests using a survey for Malawi that collected data on satisfaction with life, own economic welfare, and the perceived welfare of friends and neighbors. Their methods help address likely biases in past tests found in the literature. In marked contrast to research for industrial countries, the authors find that relative deprivation is generally not a concern for most of their sample, although it does appear to matter to the comparatively well off. Their results provide a welfarist explanation for the priority given to absolute poverty in poor countries. The pattern of externalities also suggests that there will be too much poverty and inequality in this economy, even judged solely from the point of view of aggregate efficiency.

Suggested Citation

  • Ravallion, Martin & Lokshin, Michael, 2005. "Who cares about relative deprivation ?," Policy Research Working Paper Series 3782, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3782
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    More about this item

    Keywords

    Economic Theory&Research; Poverty Diagnostics; Inequality; Biodiversity; Insurance&Risk Mitigation;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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