Inequality aversion and externalities

Marc Gürtler and Oliver Gürtler

Journal of Economic Behavior & Organization, 2012, vol. 84, issue 1, 111-117

Abstract: We conduct a general analysis of the effects of inequality aversion on decisions by homogeneous players in static and dynamic games. We distinguish between direct and indirect effects of inequality aversion. Direct effects are present when a player changes his action to affect disutility caused by inequality. Indirect effects occur when the own action is changed to affect other players’ actions. We provide necessary and sufficient conditions for the occurrence of either effect. Moreover, we examine the direction of the effects. Whereas indirect effects induce players to internalize externalities they impose on others, direct effects act in the opposite direction.

Keywords: Inequality aversion; Externalities; Direct effects; Indirect effects (search for similar items in EconPapers)
JEL-codes: C72 D62 D63 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:84:y:2012:i:1:p:111-117

DOI: 10.1016/j.jebo.2012.08.007

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