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Aversion to Inequality and Segregating Equilibria

Antonio Cabrales () and Antoni Calvó-Armengol

No 177, Working Papers from Barcelona Graduate School of Economics

Abstract: This paper shows that models where preferences of individuals depend not only on their allocations, but also on the well-being of other persons, can produce both large and testable effects. We study the allocation of workers with heterogeneous productivities to firms. We show that even small deviations from purely "selfish" preferences leads to widespread workplace skill segregation. That is, workers of different abilities tend to work in different firms, as long as they care somewhat more about the utilities of workers who are "close".

Keywords: Contract theory; Mechanism Design; envy; social preferences; skill segregation (search for similar items in EconPapers)
JEL-codes: A13 C72 D64 D80 J41 (search for similar items in EconPapers)
Date: 2005-03
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Working Paper: Aversion to Inequality and Segregating Equilibria (2007) Downloads
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