On the Inefficiency of Inequality

A number of studies have examined the implications of preference interdependence. This paper models individual utility as depending either on the level of other people's consumption or on the difference in consumption levels. It assumes that t...

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Main Author:	Schiff, Maurice
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, D.C. 2013
Subjects:	AGGREGATE DEMAND ASSET PRICES AVERAGE INCOME BANK LENDING CITIZENS CONSUMERS CONSUMPTION LEVELS CROSS-COUNTRY DIFFERENCES CROSS-COUNTRY INEQUALITY DEVELOPED COUNTRIES DEVELOPING COUNTRIES DIMINISHING MARGINAL UTILITY DISTRIBUTION OF WEALTH DISTRIBUTIVE POLITICS ECONOMIC BEHAVIOR ECONOMIC GROWTH ECONOMIC REVIEW ECONOMIC STUDIES EMPIRICAL EVIDENCE EMPIRICAL STUDIES EMPIRICAL SUPPORT EQUAL DISTRIBUTION EQUILIBRIUM EQUILIBRIUM DISTRIBUTION EXTERNALITIES EXTERNALITY FREE PRESS IMPACT OF INEQUALITY INCOME INCOME DISTRIBUTION INCOME LEVEL INDUSTRIALIZATION INEFFICIENCY INEQUALITY INTERNATIONAL DEVELOPMENT LEISURE MACROECONOMICS MARGINAL UTILITY MARKET BEHAVIOR MARKET IMPERFECTIONS NEGATIVE IMPACT NEGATIVE RELATIONSHIP PARETO OPTIMAL PER CAPITA CONSUMPTION POLICY REFORM POLICY RESEARCH POLITICAL ECONOMY POVERTY ALLEVIATION PRODUCTION FUNCTION PUBLIC SECTOR RELATIVE INCREASE SOCIAL CAPITAL TAX RATES TIME SERIES UTILITY FUNCTION WEALTH CONSUMPTION CONSUMPTION BEHAVIOR HOMELESS SOCIAL PROBLEMS CONSUMPTION PATTERNS LIFE STYLES WELFARE WELFARE ECONOMICS ECONOMIC THEORY TRICKLE UP THEORY EFFICIENCY ECONOMIC EFFECTS
Online Access:	http://documents.worldbank.org/curated/en/2004/07/4986983/inefficiency-inequality http://hdl.handle.net/10986/14170

id	okr-10986-14170
recordtype	oai_dc
spelling	okr-10986-141702021-04-23T14:03:21Z On the Inefficiency of Inequality Schiff, Maurice AGGREGATE DEMAND ASSET PRICES AVERAGE INCOME BANK LENDING CITIZENS CONSUMERS CONSUMPTION LEVELS CROSS-COUNTRY DIFFERENCES CROSS-COUNTRY INEQUALITY DEVELOPED COUNTRIES DEVELOPING COUNTRIES DIMINISHING MARGINAL UTILITY DISTRIBUTION OF WEALTH DISTRIBUTIVE POLITICS ECONOMIC BEHAVIOR ECONOMIC GROWTH ECONOMIC REVIEW ECONOMIC STUDIES EMPIRICAL EVIDENCE EMPIRICAL STUDIES EMPIRICAL SUPPORT EQUAL DISTRIBUTION EQUILIBRIUM EQUILIBRIUM DISTRIBUTION EXTERNALITIES EXTERNALITY FREE PRESS IMPACT OF INEQUALITY INCOME INCOME DISTRIBUTION INCOME LEVEL INDUSTRIALIZATION INEFFICIENCY INEQUALITY INTERNATIONAL DEVELOPMENT LEISURE MACROECONOMICS MARGINAL UTILITY MARKET BEHAVIOR MARKET IMPERFECTIONS NEGATIVE IMPACT NEGATIVE RELATIONSHIP PARETO OPTIMAL PER CAPITA CONSUMPTION POLICY REFORM POLICY RESEARCH POLITICAL ECONOMY POVERTY ALLEVIATION PRODUCTION FUNCTION PUBLIC SECTOR RELATIVE INCREASE SOCIAL CAPITAL TAX RATES TIME SERIES UTILITY FUNCTION WEALTH CONSUMPTION CONSUMPTION BEHAVIOR HOMELESS SOCIAL PROBLEMS CONSUMPTION PATTERNS LIFE STYLES INEQUALITY WELFARE WELFARE ECONOMICS ECONOMIC THEORY TRICKLE UP THEORY EFFICIENCY ECONOMIC EFFECTS A number of studies have examined the implications of preference interdependence. This paper models individual utility as depending either on the level of other people's consumption or on the difference in consumption levels. It assumes that the impact of an increase in other people's consumption on individual utility diminishes with the level of consumption, raising individual utility when that consumption is very small and lowering it when that consumption is very large. Based on that plausible assumption, the paper shows that, whether individual utility depends on the level of other people's consumption or on the difference in consumption levels, i) welfare declines with inequality, ii) equilibrium inequality is inefficient, and iii) the optimal intervention leads to a more equal distribution. Implications for the role of development institutions are examined. 2013-06-25T15:58:40Z 2013-06-25T15:58:40Z 2004-07 http://documents.worldbank.org/curated/en/2004/07/4986983/inefficiency-inequality http://hdl.handle.net/10986/14170 English en_US Policy Research Working Paper;No.3360 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, D.C. Publications & Research :: Policy Research Working Paper Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	AGGREGATE DEMAND ASSET PRICES AVERAGE INCOME BANK LENDING CITIZENS CONSUMERS CONSUMPTION LEVELS CROSS-COUNTRY DIFFERENCES CROSS-COUNTRY INEQUALITY DEVELOPED COUNTRIES DEVELOPING COUNTRIES DIMINISHING MARGINAL UTILITY DISTRIBUTION OF WEALTH DISTRIBUTIVE POLITICS ECONOMIC BEHAVIOR ECONOMIC GROWTH ECONOMIC REVIEW ECONOMIC STUDIES EMPIRICAL EVIDENCE EMPIRICAL STUDIES EMPIRICAL SUPPORT EQUAL DISTRIBUTION EQUILIBRIUM EQUILIBRIUM DISTRIBUTION EXTERNALITIES EXTERNALITY FREE PRESS IMPACT OF INEQUALITY INCOME INCOME DISTRIBUTION INCOME LEVEL INDUSTRIALIZATION INEFFICIENCY INEQUALITY INTERNATIONAL DEVELOPMENT LEISURE MACROECONOMICS MARGINAL UTILITY MARKET BEHAVIOR MARKET IMPERFECTIONS NEGATIVE IMPACT NEGATIVE RELATIONSHIP PARETO OPTIMAL PER CAPITA CONSUMPTION POLICY REFORM POLICY RESEARCH POLITICAL ECONOMY POVERTY ALLEVIATION PRODUCTION FUNCTION PUBLIC SECTOR RELATIVE INCREASE SOCIAL CAPITAL TAX RATES TIME SERIES UTILITY FUNCTION WEALTH CONSUMPTION CONSUMPTION BEHAVIOR HOMELESS SOCIAL PROBLEMS CONSUMPTION PATTERNS LIFE STYLES INEQUALITY WELFARE WELFARE ECONOMICS ECONOMIC THEORY TRICKLE UP THEORY EFFICIENCY ECONOMIC EFFECTS
spellingShingle	AGGREGATE DEMAND ASSET PRICES AVERAGE INCOME BANK LENDING CITIZENS CONSUMERS CONSUMPTION LEVELS CROSS-COUNTRY DIFFERENCES CROSS-COUNTRY INEQUALITY DEVELOPED COUNTRIES DEVELOPING COUNTRIES DIMINISHING MARGINAL UTILITY DISTRIBUTION OF WEALTH DISTRIBUTIVE POLITICS ECONOMIC BEHAVIOR ECONOMIC GROWTH ECONOMIC REVIEW ECONOMIC STUDIES EMPIRICAL EVIDENCE EMPIRICAL STUDIES EMPIRICAL SUPPORT EQUAL DISTRIBUTION EQUILIBRIUM EQUILIBRIUM DISTRIBUTION EXTERNALITIES EXTERNALITY FREE PRESS IMPACT OF INEQUALITY INCOME INCOME DISTRIBUTION INCOME LEVEL INDUSTRIALIZATION INEFFICIENCY INEQUALITY INTERNATIONAL DEVELOPMENT LEISURE MACROECONOMICS MARGINAL UTILITY MARKET BEHAVIOR MARKET IMPERFECTIONS NEGATIVE IMPACT NEGATIVE RELATIONSHIP PARETO OPTIMAL PER CAPITA CONSUMPTION POLICY REFORM POLICY RESEARCH POLITICAL ECONOMY POVERTY ALLEVIATION PRODUCTION FUNCTION PUBLIC SECTOR RELATIVE INCREASE SOCIAL CAPITAL TAX RATES TIME SERIES UTILITY FUNCTION WEALTH CONSUMPTION CONSUMPTION BEHAVIOR HOMELESS SOCIAL PROBLEMS CONSUMPTION PATTERNS LIFE STYLES INEQUALITY WELFARE WELFARE ECONOMICS ECONOMIC THEORY TRICKLE UP THEORY EFFICIENCY ECONOMIC EFFECTS Schiff, Maurice On the Inefficiency of Inequality
relation	Policy Research Working Paper;No.3360
description	A number of studies have examined the implications of preference interdependence. This paper models individual utility as depending either on the level of other people's consumption or on the difference in consumption levels. It assumes that the impact of an increase in other people's consumption on individual utility diminishes with the level of consumption, raising individual utility when that consumption is very small and lowering it when that consumption is very large. Based on that plausible assumption, the paper shows that, whether individual utility depends on the level of other people's consumption or on the difference in consumption levels, i) welfare declines with inequality, ii) equilibrium inequality is inefficient, and iii) the optimal intervention leads to a more equal distribution. Implications for the role of development institutions are examined.
format	Publications & Research :: Policy Research Working Paper
author	Schiff, Maurice
author_facet	Schiff, Maurice
author_sort	Schiff, Maurice
title	On the Inefficiency of Inequality
title_short	On the Inefficiency of Inequality
title_full	On the Inefficiency of Inequality
title_fullStr	On the Inefficiency of Inequality
title_full_unstemmed	On the Inefficiency of Inequality
title_sort	on the inefficiency of inequality
publisher	World Bank, Washington, D.C.
publishDate	2013
url	http://documents.worldbank.org/curated/en/2004/07/4986983/inefficiency-inequality http://hdl.handle.net/10986/14170
_version_	1764430464911671296

On the Inefficiency of Inequality

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