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Are People Inequality‐Averse, or Just Risk‐Averse?

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  • Fredrik Carlsson
  • Dinky Daruvala
  • Olof Johansson‐Stenman

Abstract

Individuals' preferences for risk and inequality are measured through choices between imagined societies and lotteries. The median relative risk aversion, which is often seen to reflect social inequality aversion, is between 2 and 3. Most people are also found to be individually inequality‐averse, reflecting a willingness to pay for living in a more equal society. Left‐wing voters and women are both more risk and inequality‐averse than others. The model allows for non‐monotonic SWFs, implying that welfare may decrease with an individual's income at high‐income levels, which is illustrated in simulations based on the empirical results.

Suggested Citation

  • Fredrik Carlsson & Dinky Daruvala & Olof Johansson‐Stenman, 2005. "Are People Inequality‐Averse, or Just Risk‐Averse?," Economica, London School of Economics and Political Science, vol. 72(287), pages 375-396, August.
    • Handle: RePEc:bla:econom:v:72:y:2005:i:287:p:375-396
    DOI: 10.1111/j.0013-0427.2005.00421.x
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    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement

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