Inequality and incentives with societal other-regarding preferences

Benjamin Bental and Jenny Kragl

Journal of Economic Behavior & Organization, 2021, vol. 188, issue C, 1298-1324

Abstract: The article is concerned with understanding the impact of social preferences and wealth inequality on aggregate economic outcomes. We investigate how different manifestations of societal other-regarding preferences affect labor relationships and incentive contracts at the microeconomic level and how these in turn translate into macroeconomic outcomes. Increasing the workers’ sensitivity to inequality raises effort and reduces wage costs for poor but not necessarily for rich workers. A parameterized version of the model roughly mimicking relevant key features of the industrialized world shows that, at the general equilibrium, increased initial wealth differences raise aggregate profit and output but entail distributional utility losses and increased inequality.

Keywords: Other-regarding preferences; Incentives; General equilibrium; Inequality; Wealth; Income; Inequality aversion; Competitiveness (search for similar items in EconPapers)
JEL-codes: D31 D50 D63 D82 M52 M54 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:188:y:2021:i:c:p:1298-1324

DOI: 10.1016/j.jebo.2021.05.024

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