Dissecting inequality-averse preferences

Abstract

Using an experimental-questionnaire method combined with randomized information treatments, this paper analyzes the drivers of individual inequality aversion. We elicit inequality aversion by asking a sample of more than 1800 Uruguayan students to choose a society for a hypothetical grandchild. Participants make a sequence of choices between imagined societies characterized by varying levels of average income and income inequality. In addition, we prime competing narratives regarding the sources of inequality in society. The main findings are that (1) the prevalence of inequality aversion is high: Most participants’ choices revealed inequality-averse preferences; (2) inequality aversion is increasing in the position of the hypothetical grandchild in the income distribution, like a normal good; (3) participants are more likely to accept inequality when it results from effort rather than luck independently of their grandchild’s position; (4) the effect of social mobility on inequality aversion depends on the grandchild’s income position: Mobility opportunities reduce (increase) inequality aversion if participants expect their grandchild’s income to increase (fall). The latter result is consistent with the idea that mobility may impact the desire for more or less redistribution through rational expectation and risk aversion.