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2005-08-01 | Peer Reviewed

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

Carlsson, Fredrik, Olof Johansson-Stenman and Dinky Daruvala. 2005. “Are People Inequality-Averse, or Just Risk-Averse?.” Economica 72: 375-396.
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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.

Co-author:

Dinky Daruvala