Distribution of Wealth and Interdependent Preferences

Andrew Grodner and Thomas Kniesner

No 3684, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: 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.

Keywords: social interactions; wealth inequality; earnings inequality; social welfare (search for similar items in EconPapers)
JEL-codes: D31 D63 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2008-09
New Economics Papers: this item is included in nep-lab, nep-soc and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published - published in: Foundations and Trends in Microeconomics, 2010, 6 (4), 265-366

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