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Inequality aversion and risk aversion

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  • Chambers, Christopher P.

Abstract

This note shows that for two social welfare functions which are inequality averse with respect to certainty equivalents, if one is more inequality averse for certainty equivalents than the other, the household preference induced by optimally allocating aggregate bundles according to this social welfare function is more risk averse than the other. We present examples showing that this comparative static can be reversed if absolute inequality aversion is dropped. We show that the utilitarian rule always induces the least risk averse household preference among all social welfare functions (this corresponds to the sum of certainty equivalents).
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  • Chambers, Christopher P., "undated". "Inequality aversion and risk aversion," Working Papers 1300, California Institute of Technology, Division of the Humanities and Social Sciences.
    • Handle: RePEc:clt:sswopa:1300
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    File URL: http://www.hss.caltech.edu/SSPapers/sswp1300.pdf
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    References listed on IDEAS

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    1. Michael Jerison, 1994. "Optimal Income Distribution Rules and Representative Consumers," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(4), pages 739-771.
    2. Marc Fleurbaey, 2010. "Assessing Risky Social Situations," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 649-680, August.
    3. Paul A. Samuelson, 1956. "Social Indifference Curves," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 70(1), pages 1-22.
    4. Chipman, John S. & Moore, James C., 1979. "On social welfare functions and the aggregation of preferences," Journal of Economic Theory, Elsevier, vol. 21(1), pages 111-139, August.
    5. Itzhak Gilboa & Dov Samet & David Schmeidler, 2004. "Utilitarian Aggregation of Beliefs and Tastes," Journal of Political Economy, University of Chicago Press, vol. 112(4), pages 932-938, August.
    6. Yaari, Menahem E., 1969. "Some remarks on measures of risk aversion and on their uses," Journal of Economic Theory, Elsevier, vol. 1(3), pages 315-329, October.
    7. Dow, James & da Costa Werlang, Sergio Ribeiro, 1988. "The consistency of welfare judgments with a representative consumer," Journal of Economic Theory, Elsevier, vol. 44(2), pages 269-280, April.
    8. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, vol. 2(3), pages 244-263, September.
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    Cited by:

    1. Gajdos, Thibault & Weymark, John A., 2012. "Introduction to inequality and risk," Journal of Economic Theory, Elsevier, vol. 147(4), pages 1313-1330.
    2. Silvester Van Koten & Andreas Ortmann & Vitezslav Babicky, 2013. "Fairness in Risky Environments: Theory and Evidence," Games, MDPI, vol. 4(2), pages 1-35, May.
    3. Mori, Osamu, 2014. "Alternative derivation of the leximin principle," Economics Letters, Elsevier, vol. 124(1), pages 157-159.
    4. Luciano Andreozzi & Matteo Ploner & Ivan Soraperra, 2013. "Justice among strangers. On altruism, inequality aversion and fairness," CEEL Working Papers 1304, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
    5. repec:cup:judgdm:v:10:y:2015:i:2:p:198-203 is not listed on IDEAS
    6. Khan, Urmee & Stinchcombe, Maxwell B., 2018. "Planning for the long run: Programming with patient, Pareto responsive preferences," Journal of Economic Theory, Elsevier, vol. 176(C), pages 444-478.
    7. repec:grz:wpsses:2021-02 is not listed on IDEAS
    8. Luciano Andreozzi, 2019. "On Being Inequality Averse: Measurement and Behavioral Characterization," DEM Working Papers 2019/10, Department of Economics and Management.
    9. Zachary Michaelson, 2015. "Biases in choices about fairness: Psychology and economic inequality," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 10(2), pages 198-203, March.

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    JEL classification:

    • D60 - Microeconomics - - Welfare Economics - - - General

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