Journal Article

Inequity Aversion, Welfare Measurement and the Gini Index

Social Choice and Welfare

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.

Authors

Prof. Dr. Philipp C. Wichardt - Institut für Weltwirtschaft (IfW) / Kiel Institute for the World Economy
Philipp Wichardt

Info

Publication Date
forthcoming
JEL Classification
D01, D63

Related Topics