Which Inequality? The Inequality of Endowments versus the Inequality of Rewards

Hopkins, Ed; Kornienko, Tatiana

doi:10.1257/mic.2.3.106

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American Economic Journal: Microeconomics: Vol. 2 No. 3 (August 2010)

AEJ: Micro Volume. 2, Issue 3 | left

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Which Inequality? The Inequality of Endowments versus the Inequality of Rewards

Article Citation

Hopkins, Ed, and Tatiana Kornienko. 2010. "Which Inequality? The Inequality of Endowments versus the Inequality of Rewards." American Economic Journal: Microeconomics, 2(3): 106-37.

DOI: 10.1257/mic.2.3.106

Abstract

We introduce a new distinction between inequality in initial endowments (e.g., ability, inherited wealth) and inequality of what one can obtain as rewards (e.g., prestigious positions, money). We show that, when society allocates resources via tournaments, these two types of inequality have opposing effects on equilibrium behavior and well-being. Greater inequality of rewards hurts most people -- both the middle class and the poor -- who are forced into greater effort. Conversely, greater inequality of endowments benefits the middle class. Thus, the correctness of our intuitions about the implications of inequality is hugely affected by the type of inequality considered. (JEL D63, D82)

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Authors

Hopkins, Ed (U Edinburgh)
Kornienko, Tatiana (U Edinburgh)

JEL Classifications

D63: Equity, Justice, Inequality, and Other Normative Criteria and Measurement
D82: Asymmetric and Private Information

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