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Purpose: The purpose of this paper is to investigate whether inequality aversion is influenced by the risk level. Recently empirical evidence points to deviations from selfish behavior of Homo economicus. Thus, people are not motivated solely by their own monetary payoffs, but are also concerned about issues of equality and fairness. This paper distinguishes between inequality aversion and risk aversion and discusses whether the level of risk affects these motivations.

Design: In an experimental framework the attitude toward inequality is separated from the attitude toward risk. A risky environment is generated by a set of lotteries. The subjects had to determine the method for payment, equally (CG) or nonequally (IG), for three lotteries with different levels of risk. The inequality preferences are measured by the level of the selected probability for CG.

Findings: The main finding of this paper is that preferences for inequality are influenced by level of risk. We found that aversion to inequality was stronger when the level of risk was higher. In the low and medium risk lotteries participants preferred the individual gamble – the nonegalitarian method. Only in the high-risk lottery the participants preferred the common gamble that assured them equal payments.

Originality/value: The paper distinguishes between inequality aversion and risk aversion and subjects are allowed to trade one off against the other. Thus, it contributes to the understanding of the interrelationship between income inequality and risk.

Supposing that decisionmakers in any country and at any point in time tolerate a certain fixed level of perceived poverty, differences in poverty aversion are called for to explain observed international and intertemporal variations in poverty statistics. Under the Natural Rate of Subjective Poverty hypothesis advanced in this paper, variations in the degree of poverty aversion are estimable and can be explained by political and socioeconomic factors. The methodology is applied to US data from 1975 to 1998 and across nations using cross-section data from the mid-1990s. Factors such as the political affiliation of government officials, public expenditure, per capita income, and economic growth account for much of the variation in poverty aversion implied by our hypothesis. The relationship between inequality aversion and poverty aversion is also explored, with the aid of a parallel “natural rate” hypothesis for inequality (Lambert et al., 2003). Our findings provide a new framework in which to interpret observed correlations between poverty, inequality, and social welfare.

This paper aims to conduct a hypothetical dictator game with social distance and time delays using conjoint analysis.

Responses from 1,347 Japanese adults are collected through an online survey, and their responses are analyzed using a random parameter logit model.

The paper finds that social preference for the present income of a stranger equals social preference for the income of an acquaintance 140 days later, of a close friend 224 days later, and of a family member 255 days later.

The paper simultaneously estimates social preference parameters, including the inequality aversion rate, the social discount rate, and the time discount rate.

Recent decades have witnessed a rising interest in the measurement of inequality from a multidimensional perspective. This literature has however remained largely theoretical. This chapter presents an empirical application of a recent methodology and in doing so offers practical insights on how multidimensional inequality can be measured over two attributes (wealth and health) in the developing country context. Following Abul Naga and Geoffard (2006), a methodological framework allowing the decomposition of multidimensional inequality into two univariate Atkinson–Kolm–Sen equality indices and a third term measuring the association between the attributes is implemented. The methodology is then illustrated using data from the World Health Surveys 2002–2003. Specifically, this study presents the first comparative analysis on multidimensional inequality for a set of Middle East and North African (MENA) countries. Results reveal that the multidimensional (in-)equality indices tend to mimic the (in-)equality ordering of the wealth distributions as the latter are always less equally distributed than health. An empirical conclusion that emerges is that reducing the correlation between the attributes may help to reduce overall welfare inequality, specifically when socioeconomic inequality in health is pro-poor. The finding that the correlation between attributes has a significant contribution in the quantification of inequality has important policy implications since it reveals that it is not only wealth and health inequalities per se that matter in the measurement of welfare inequality but also the associations between them.

In this chapter we discuss the cost-effectiveness analysis (CEA) of public health interventions where there are combined, and potentially conflicting, objectives of increasing total population health and reducing unfair health inequalities in the population. Our focus is on identifying appropriate health inequality measures in this context to quantify the impacts of interventions on unfair health inequality and, where necessary, analyse equity-efficiency trade-offs between improving total population health and reducing unfair health inequality. We recognise that this requires a number of important social value judgements to be made, and so prefer measures that facilitate transparency about these social value judgements. We briefly summarise the literature on health inequality and health-related social welfare functions, and conclude that while valuable it is not entirely suitable for our purpose. We borrow instead from the wider literature on economic inequality, highlighting how this translates to a health setting, and identify appropriate measures for CEA. We conclude with a stylised example illustrating how we would apply a battery of dominance rules and social welfare indices to evaluate the health distributions associated with two hypothetical health interventions.

This paper analyses the relative inequality of the personal income distribution in the EU15 and Member countries using the European Community Household Panel (1994–2001). We select well-known measures like the Gini and Atkinson indices and calculate the 95 percent confidence intervals. Whenever possible we identify unambiguous rankings; when this is not possible we explain the differences through their inequality sensitivity and normative meaning.

We find an important regional differences in income inequality when comparing Southern European countries with the Northern and Central European ones. In 2001, Southern Europe and the United Kingdom are the most unequal countries in spite of the fact that the majority of these countries enjoyed decreasing income inequality over the time period studied.

Programs are typically evaluated through the average treatment effect and its standard error. In particular, is the treatment effect positive and is it statistically significant? In theory, programs should be evaluated in a decision framework, using social welfare functions and posterior predictive distributions for outcomes of interest. This chapter discusses the use of stochastic dominance of predictive distributions of outcomes to rank programs, and, under more restrictive parametric and functional form assumptions, the chapter develops intuitive mean-variance tests for program evaluation that are consistent with the underlying decision problem. These concepts are applied to the GAIN and JTPA datasets.

The leaky bucket and the transfer principle are tested under conditions of individual uncertainty, behind a veil of ignorance and when positions are known. We find that choices under individual uncertainty are slightly more risk seeking than behind a veil of ignorance indicating that the conventional practice of modeling inequality aversion as risk aversion does not lead to serious error. However, our subjects can not be said to be risk seeking or risk averse but rather protect against downside risks and seek upside gain. As in previous experiments, we find that choices with positions known are quite insensitive to inefficiency and exhibit considerable antipathy to returns that accrue to others, whether richer or poorer. Richer American males are least likely to support leaky-bucket transfers that reduce inequality once positions are known. Lottery players, but not smokers show greater risk preference given individual uncertainty.

The last 20 years have seen a significant evolution in the literature on horizontal inequity (HI) and have generated two major and “rival” methodological strands, namely, classical HI and reranking. We propose in this paper a class of ethically flexible tools that integrate these two strands. This is achieved using a measure of inequality that merges the well-known Gini coefficient and Atkinson indices, and that allows a decomposition of the total redistributive effect of taxes and transfers into a vertical equity effect and a loss of redistribution due to either classical HI or reranking. An inequality-change approach and a money-metric cost-of-inequality approach are developed. The latter approach makes aggregate classical HI decomposable across groups. As in recent work, equals are identified through a non-parametric estimation of the joint density of gross and net incomes. An illustration using Canadian data from 1981 to 1994 shows a substantial, and increasing, robust erosion of redistribution attributable both to classical HI and to reranking, but does not reveal which of reranking or classical HI is more important since this requires a judgement that is fundamentally normative in nature.

The “prospect of upward mobility” (POUM) hypothesis formalised by Benabou and Ok (2001a) finds explicit assumptions under which some individuals that are poorer than the average optimally choose to oppose redistribution policies. The underlying intuition is that these individuals rationally expect to be richer than average in the future. This result holds provided the mobility process is concave in expectations, redistribution policies are expected to last for a sufficiently long period and individuals are not too risk averse. This paper tests the POUM hypothesis by means of a within subjects experiment where the concavity of the mobility process, the degree of social mobility, the knowledge of personal income and the degree of inequality are used as treatments. Other determinants of the demand for redistribution, such as risk aversion and inequality aversion are (partially) controlled for via either the experiment design or the information collected during the experiment. We find that the POUM hypothesis holds under alternative specifications, even when we control for individual fixed effects.