Inequality, Happiness and Relative Concerns: What Actually is their Relationship?

Research output: Working paperDiscussion paper

Abstract

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.
Original languageEnglish
PublisherEdinburgh School of Economics Discussion Paper Series
Number of pages24
Publication statusPublished - Jan 2008

Publication series

NameESE Discussion Papers
No.180

Keywords

  • inequality
  • relative position
  • social preferences
  • tournaments
  • evolution

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