Advertisement

Distaste for Inequality? The Role of Risk Aversion

  • Ada Ferrer-i-CarbonellEmail author
  • Xavier Ramos
Chapter

Abstract

Risk aversion is an important argument to explain why individuals may dislike inequality. However, this relationship has not been empirically tested for large representative samples. Using a representative panel for Germany, we estimate this relationship by linking subjective well-being (a proxy for utility), inequality, and self-reported risk attitudes. The results confirm that risk aversion has a positive effect on dislike for inequality: more risk averse individuals are also more inequality averse. This relationship however is partly driven by other individual characteristics (gender, education, and income) that are correlated with risk attitudes.

Keywords

Inequality aversion Risk attitudes Subjective well-being German SOEP Panel data 

Notes

Acknowledgements

Ada Ferrer-i-Carbonell acknowledges financial support from the Spanish Ministry of Economy and Competitiveness, through the Severo Ochoa Programme for Centres of Excellence in R&D (SEV-2015-0563), from the Spanish Ministry of Science and Innovation (ECO2014-59302-P), and the Catalan Government (01414-SGR). Xavier Ramos acknowledges financial support from the Spanish Ministry of Economy and Competitiveness’ project ECO2016-76506-C4-4-R), and the Catalan Government (SGR2014-1279).

References

  1. Alesina, A., & Angeletos, G. M. (2005). Fairness and redistribution: US vs. Europe. American Economic Review, 95, 913–935.CrossRefGoogle Scholar
  2. Alesina, A., & Giuliano, P. (2011). Preferences for redistribution. In A. Bisin & J. Benhabib (Eds.), Handbook of social economics (pp. 93–132). Amsterdam: North Holland.CrossRefGoogle Scholar
  3. Alesina, A., & Glaeser, E. (2004). Fighting poverty in the US and Europe: A world of difference. Oxford: Oxford University Press.CrossRefGoogle Scholar
  4. Alesina, A., & La Ferrara, E. (2005). Preferences for redistribution in the land of opportunities. Journal of Public Economics, 89(5–6), 897–931.CrossRefGoogle Scholar
  5. Alesina, A., Di Tella, R., & MacCulloch, R. (2004). Inequality and happiness: Are Europeans and Americans different? Journal of Public Economics, 88(9–10), 2009–2042.CrossRefGoogle Scholar
  6. Amiel, Y., Creedy, J., & Hurn, S. (1999). Measuring attitudes towards inequality. Scandinavian Journal of Economics, 101(1), 83–96.CrossRefGoogle Scholar
  7. Amiel, Y., Cowell, F. A., & Gaertner, W. (2009). To be or not to be involved: A questionnaire-experimental view on Harsanyi’s utilitarian ethics. Social Choice and Welfare, 32(2), 299–316.CrossRefGoogle Scholar
  8. Angrist, J. D., & Pischke, J. S. (2008). Mostly harmless econometrics: An empiricist’s companion. Princeton: Princeton university press.CrossRefGoogle Scholar
  9. Benabou, R., & Ok, E. A. (2001). Social mobility and the demand for redistribution: The POUM hypothesis. The Quarterly Journal of Economics, 116(2), 447–487.CrossRefGoogle Scholar
  10. Bernasconi, M. (2002). How should income be divided? Questionnaire evidence from the theory of “impartial preferences”. Journal of Economics, 77(1), 163–195.CrossRefGoogle Scholar
  11. Bosmans, K., & Schokkaert, E. (2004). Social welfare, the veil of ignorance and purely individual risk: An empirical examination. In F. Cowell (Ed.), Inequality, welfare and income distribution: Experimental approaches (pp. 85–114). Bingley: Emerald Group Publishing Limited.CrossRefGoogle Scholar
  12. Brennan, G., González, L. G., Güth, W., & Levati, M. V. (2008). Attitudes toward private and collective risk in individual and strategic choice situations. Journal of Economic Behavior & Organization, 67(1), 253–262.CrossRefGoogle Scholar
  13. Cameron, A. C., & Miller, D. L. (2010). Robust inference with clustered data. In A. Ullah & D. E. Giles (Eds.), Handbook of empirical economics and finance (pp. 1–28). Boca Raton: Chapman and Hall/CRC Press.Google Scholar
  14. Carlsson, F., Daruvala, D., & Johansson-Stenman, O. (2005). Are people inequality-averse, or just risk-averse? Economica, 72(287), 375–396.CrossRefGoogle Scholar
  15. Clark, A. E., Frijters, P., & Shields, M. A. (2008). Relative income, happiness, and utility: An explanation for the Easterlin paradox and other puzzles. Journal of Economic Literature, 46(1), 95–144.CrossRefGoogle Scholar
  16. Cooper, M. L., Agocha, V. B., & Sheldon, M. S. (2000). A motivational perspective on risky behaviors: The role of personality and affect regulatory processes. Journal of Personality, 68(6), 1059–1088.CrossRefGoogle Scholar
  17. Cowell, F. A. (2011). Measuring inequality. Oxford: Oxford University Press.CrossRefGoogle Scholar
  18. Cruces, G., Perez-Truglia, R., & Tetaz, M. (2013). Biased perceptions of income distribution and preferences for redistribution: Evidence from a survey experiment. Journal of Public Economics, 98, 100–112.CrossRefGoogle Scholar
  19. Dawes, C. T., Fowler, J. H., Johnson, T., McElreath, R., & Smirnov, O. (2007). Egalitarian motives in humans. Nature, 446(7137), 794.CrossRefGoogle Scholar
  20. Dohmen, T. J., Falk, A., Huffman, D., Sunde, U., Schupp, J., & Wagner, G. G. (2005). Individual risk attitudes: New evidence from a large, representative, experimentally-validated survey (IZA working paper n.1730). London: Centre for Economic Policy Research.Google Scholar
  21. Easterlin, R. A. (1974). Does economic growth improve the human lot? Some empirical evidence. In P. A. David & M. W. Reder (Eds.), Nations and households in economic growth: Essays in honour of Moses Abramovitz (pp. 89–125). New York: Academic.Google Scholar
  22. Ferrer-i-Carbonell, A., & Frijters, P. (2004). How important is methodology for the estimates of the determinants of happiness? The Economic Journal, 114(497), 641–659.CrossRefGoogle Scholar
  23. Ferrer-i-Carbonell, A., & Ramos, X. (2014). Inequality and happiness. Journal of Economic Surveys, 28(5), 1016–1027.CrossRefGoogle Scholar
  24. Harsanyi, J. C. (1955). Cardinal welfare, individualistic ethics, and interpersonal comparisons of utility. Journal of Political Economy, 63(4), 309–321.CrossRefGoogle Scholar
  25. Hartog, J., Ferrer-i-Carbonell, A., & Jonker, N. (2002). Linking measured risk aversion to individual characteristics. Kyklos, 55(1), 3–26.CrossRefGoogle Scholar
  26. Kroll, Y., & Davidovitz, L. (2003). Inequality aversion versus risk aversion. Economica, 70(277), 19–29.CrossRefGoogle Scholar
  27. Meltzer, A. H., & Richard, S. F. (1981). A rational theory of the size of government. Journal of Political Economy, 89(5), 914–927.CrossRefGoogle Scholar
  28. Morawetz, D., Atia, E., Bin-Nun, G., Felous, L., Gariplerden, Y., Harris, E., … & Zarfaty, Y. (1977). Income distribution and self-rated happiness: Some empirical evidence. The Economic Journal, 87(347), 511–522.Google Scholar
  29. Okun, A. (1975). Equality and efficiency: The big trade-off. Washington, DC: Brookings Institution.Google Scholar
  30. Piketty, T. (1995). Social mobility and redistributive politics. The Quarterly Journal of Economics, 110(3), 551–584.CrossRefGoogle Scholar
  31. Pirttilä, J., & Uusitalo, R. (2010). A ‘leaky bucket’ in the real world: Estimating inequality aversion using survey data. Economica, 77(305), 60–76.CrossRefGoogle Scholar
  32. Ravallion, M., & Lokshin, M. (2000). Who wants to redistribute? The tunnel effect in 1990s Russia. Journal of Public Economics, 76(1), 87–104.CrossRefGoogle Scholar
  33. Romer, T. (1975). Individual welfare, majority voting, and the properties of a linear income tax. Journal of Public Economics, 4(2), 163–185.CrossRefGoogle Scholar
  34. Schwarze, J., & Härpfer, M. (2007). Are people inequality averse, and do they prefer redistribution by the state?: Evidence from german longitudinal data on life satisfaction. The Journal of Socio-Economics, 36(2), 233–249.CrossRefGoogle Scholar
  35. Senik, C. (2005). What can we learn from subjective data? The case of income and well-being. Journal of Economic Surveys, 19, 43–63.CrossRefGoogle Scholar
  36. Van Praag, B. & Ferrer-i-Carbonell, A. (2004). Happiness quantified, a satisfaction calculus approach (Reprint 2008). Oxford: Oxford University Press.Google Scholar
  37. Vickerey, W. (1945). Measuring marginal utility by reactions to risk. Econometrica, 13, 215–236.Google Scholar
  38. Wagner, G. G., Frick, J. R., & Schupp, J. (2007). The German Socio-Economic Panel study (SOEP) – scope, evolution and enhancements. Schmollers Jahrbuch, 127, 139–169.Google Scholar
  39. Wooldrige, J. M., (2006). Cluster-sample methods in applied econometrics: An extended analysis. Unpublished paper. University of Michigan.Google Scholar
  40. Zuckerman, M., & Kuhlman, D. M. (2000). Personality and risk-taking: Common biosocial factors. Journal of Personality, 68(6), 999–1029.CrossRefGoogle Scholar

Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.Institute for Economic Analysis (CSIC)BarcelonaSpain
  2. 2.Departament d’Economia AplicadaUniversitat Autònoma de BarcelonaBarcelonaSpain

Personalised recommendations