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Inequality, happiness and relative concerns: What actually is their relationship?

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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.

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Authors and Affiliations

  1. Economics, University of Edinburgh, Edinburgh, EH8 9JY, UK

    Ed Hopkins

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  1. Ed Hopkins
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Correspondence to Ed Hopkins.

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I would like to thank Ravi Kanbur, Tatiana Kornienko and, especially, Andrew Oswald for very helpful comments. Any errors are mine.

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Hopkins, E. Inequality, happiness and relative concerns: What actually is their relationship?. J Econ Inequal 6, 351–372 (2008). https://doi.org/10.1007/s10888-008-9081-4

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  • DOI: https://doi.org/10.1007/s10888-008-9081-4

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