Relativity, Rank and the Utility of Income

21 Pages Posted: 27 Mar 2008

See all articles by Matthew D. Rablen

Matthew D. Rablen

University of Sheffield - Department of Economics

Date Written: 0000

Abstract

Relative utility has become an important concept in several disjoint areas of economics. I present a cardinal model of income utility based on the supposition that agents care about their rank in the income distribution and that utility is subject to adaptation over time. Utility levels correspond to the Leyden Individual Welfare Function while utility differences yield a version of the prospect theory value function, thereby providing a new and shared derivation of each. I offer an explanation of some long-standing paradoxes in the wellbeing literature and an insight into the links between relative comparisons and loss aversion.

Suggested Citation

Rablen, Matthew D., Relativity, Rank and the Utility of Income (0000). The Economic Journal, Vol. 118, Issue 528, pp. 801-821, April 2008. Available at SSRN: https://ssrn.com/abstract=1111808 or http://dx.doi.org/10.1111/j.1468-0297.2008.02143.x

Matthew D. Rablen (Contact Author)

University of Sheffield - Department of Economics ( email )

9 Mappin Street
Sheffield, S1 4DT
United Kingdom

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