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.
|Name||ESE Discussion Papers|
- relative position
- social preferences