Inequity Aversion, Welfare Measurement and the Gini Index

11 Pages Posted: 15 Jul 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

Over the last decades, research in behavioural economics has demonstrated that individual welfare (utility), as relevant for economic decision making, depends not only on absolut but also on distributional aspects. Moreover, evidence is gathering that something similar holds for aggregate welfare, i.e. that GDP alone is an insufficient predictor for various supposedly welfare related variables on a societal level. This note shows that distributional concerns on an aggregate level can indeed be derived from distributional concerns on an individual level: integrating individual inequity aversion into a utilitarian social welfare function yields a simple welfare measure which comprises both GDP and income inequality as measured by the Gini index.

Keywords: Gini index, inequality, welfare

JEL Classification: D010, D630

Suggested Citation

Schmidt, Ulrich and Wichardt, Philipp C., Inequity Aversion, Welfare Measurement and the Gini Index (May 11, 2018). CESifo Working Paper Series No. 7029. Available at SSRN: https://ssrn.com/abstract=3202080

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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