Equity aversion, inequality aversion and economic welfare: On the macroeconomic substantiation of microeconomic utility functions

Friedrich L. Sell and Felix Stratmann

No 2009,2, Working Papers in Economics from Bundeswehr University Munich, Economic Research Group

Abstract: In this paper, we first model the dynamics of an economy, making use of a simple, almost trivial circular flow analysis. Then, we demonstrate the effects of "keeping up with the Joneses" as well as of "keeping ahead of the Smiths" in private consumption and the role of innovation and imitation for private investment and economic growth. In either case, we detect both a tendency towards convergence (inequity aversion) and towards divergence (equity aversion) in the macro economy. On the background of the macroeconomic analysis we then turn to a microeconomic view and discuss how the characteristics, functions and findings of selected fairness models which include social preferences change when "equity aversion" is integrated into the theoretical framework. Thereafter, the collected results of both micro and macroeconomic analysis allow us to draw a series of conclusions concerning economic policy in different areas.

Keywords: economic welfare; inequity aversion; fairness concepts (search for similar items in EconPapers)
JEL-codes: D01 D63 D92 E21 E22 (search for similar items in EconPapers)
Date: 2009
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/32831/1/605919429.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:ubwwpe:20092

Access Statistics for this paper

More papers in Working Papers in Economics from Bundeswehr University Munich, Economic Research Group Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().