Download this Paper Open PDF in Browser

Inequality Aversion and Externalities

24 Pages Posted: 20 Jun 2011 Last revised: 29 Nov 2011

Marc Gürtler

University of Braunschweig - Institute of Technology, Department of Finance

Oliver Gürtler

University of Cologne

Date Written: 2011

Abstract

We conduct a general analysis of the effects of inequality aversion on decisions by homogeneous players in static and dynamic games. We distinguish between direct and indirect effects of inequality aversion. Direct effects are present when a player changes his action to affect disutility caused by inequality. Indirect effects occur when the own action is changed to affect other players' actions. We provide necessary and sufficient conditions for the occurrence of either effect. Moreover, we examine the direction of the effects. Whereas indirect effects induce players to internalize externalities they impose on others, direct effects act in the opposite direction.

Keywords: inequality aversion, externalities, direct effects, indirect effects

JEL Classification: C72, D62, D63

Suggested Citation

Gürtler, Marc and Gürtler, Oliver, Inequality Aversion and Externalities (2011). Available at SSRN: https://ssrn.com/abstract=1867563 or http://dx.doi.org/10.2139/ssrn.1867563

Marc Gürtler (Contact Author)

University of Braunschweig - Institute of Technology, Department of Finance ( email )

Abt-Jerusalem-Str. 7
Braunschweig, 38106
Germany

Oliver Gürtler

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany

Paper statistics

Downloads
76
Rank
267,269
Abstract Views
695