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Output and wages with inequality averse agents
Author(s) -
Demougin Dominique,
Fluet Claude,
Helm Carsten
Publication year - 2006
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/j.0008-4085.2006.00352.x
Subject(s) - citation , schools of economic thought , inequality , sociology , library science , management , economics , computer science , neoclassical economics , mathematical analysis , mathematics
We analyze a two-task work environment with risk-neutral but in- equality averse individuals. For the agent employed in task 2 eort is verifiable, while in task 1 it is not. Accordingly, agent 1 receives an incentive contract which, due to his wealth constraint, leads to a rent that the other agent resents. We show that greater inequality aver- sion unambiguously decreases total output and therefore average labor productivity. More specifically, inequality aversion reduces eort, wage