Distribution of Wealth and Interdependent Preferences

18 Pages Posted: 14 Sep 2008

See all articles by Andrew Grodner

Andrew Grodner

East Carolina University - Department of Economics

Thomas J. Kniesner

Claremont Graduate University - Department of Economic Sciences; Syracuse University - Department of Economics; IZA

Abstract

We examine the socially optimal wealth distribution in a two-person two-good model with heterogeneous workers and asymmetric social interactions where only one (social) individual derives positive or negative utility from the leisure of the other (non-social) individual. We show that the interdependence can effectively counter-act the need to transfer wealth to low-wage individuals and may require them to be poorer by all objective measures. We demonstrate that in the presence of social interactions it can be socially desirable to keep substantial wealth inequality.

Keywords: wealth inequality, earnings inequality, social welfare, social interactions

JEL Classification: D31, D63

Suggested Citation

Grodner, Andrew and Kniesner, Thomas J., Distribution of Wealth and Interdependent Preferences. IZA Discussion Paper No. 3684. Available at SSRN: https://ssrn.com/abstract=1267825 or http://dx.doi.org/10.1111/j.0042-7092.2007.00700.x

Andrew Grodner (Contact Author)

East Carolina University - Department of Economics ( email )

A423 Brewster Building
Greenville, NC 27858
United States
2523286742 (Phone)

Thomas J. Kniesner

Claremont Graduate University - Department of Economic Sciences ( email )

Claremont, CA 91711
United States

Syracuse University - Department of Economics ( email )

Syracuse, NY 13244-1020
United States

IZA

P.O. Box 7240
Bonn, D-53072
Germany

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