Inequity Aversion, Welfare Measurement and the Gini Index

9 Pages Posted: 23 May 2018

See all articles by Ulrich Schmidt

Ulrich Schmidt

University of Kiel - Institute of Economics

Philipp C. Wichardt

University of Rostock - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: May 11, 2018

Abstract

Integrating individual inequity aversion into a utilitarian social welfare function, we derive a simple welfare measure which comprises both GDP and income inequality as measured by the Gini-index. The provided theoretical link between inequity aversion (popular in behavioural microeconomics) and the Gini-index (used in macroeconomic evaluations) strongly suggest that both measures indeed reflect the same empirically relevant aspect of reality, thereby giving substantial further warrant to either of them. As a kind of side effect, we provide a (so far missing) theoretical foundation for the Gini-Index.

Suggested Citation

Schmidt, Ulrich and Wichardt, Philipp C., Inequity Aversion, Welfare Measurement and the Gini Index (May 11, 2018). Available at SSRN: https://ssrn.com/abstract=3177102 or http://dx.doi.org/10.2139/ssrn.3177102

Ulrich Schmidt

University of Kiel - Institute of Economics ( email )

Olshausenstrasse 40
24098 Kiel, 24098
Germany

Philipp C. Wichardt (Contact Author)

University of Rostock - Department of Economics ( email )

Ulmenstr. 69
Rostock, 18057
Germany

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