Inequality, Happiness and Relative Concerns: What Actually is their Relationship?

Ed Hopkins ()
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Ed Hopkins: http://homepages.ed.ac.uk/ehk/

ESE Discussion Papers from Edinburgh School of Economics, University of Edinburgh

Abstract: This paper briefly and informally surveys different theoretical models of relative concerns and their relation to inequality. Models of inequity aversion in common use in experimental economics imply a negative relation between inequality and happiness. In contrast, empirical studies on happiness typically employ models of relative concerns that assume that increases in others’ income always have a negative effect on own happiness. However, in these latter models, the relation between inequality and happiness can be positive. One possible solution is a rivalry model where a distinction is made between endowment and reward inequality which have respectively a negative and positive effect on happiness. These different models and their contrasting results may clarify why the empirical relationship between inequality and happiness has been difficult to establish.

Keywords: : inequality; relative position; social preferences; tournaments; evolution. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hap, nep-hpe, nep-lab and nep-soc
Date: 2008-02-11
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Persistent link: http://EconPapers.repec.org/RePEc:edn:esedps:180

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