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Inequality Aversion and Externalities

Marc Gürtler

University of Braunschweig - Institute of Technology, Department of Finance

Oliver Gürtler

University of Cologne


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.

Number of Pages in PDF File: 24

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

JEL Classification: C72, D62, D63

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Date posted: June 20, 2011 ; Last revised: November 29, 2011

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

Contact Information

Marc Gürtler (Contact Author)
University of Braunschweig - Institute of Technology, Department of Finance ( email )
Abt-Jerusalem-Str. 7
Braunschweig, 38106
Oliver Gürtler
University of Cologne ( email )
Cologne, 50923
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