TY - BOOK ID - 133698471 TI - On the Inefficiency of Inequality PY - 2004 PB - Washington, DC : World Bank, DB - UniCat KW - Utility theory KW - Mathematical models. UR - https://www.unicat.be/uniCat?func=search&query=sysid:133698471 AB - A number of studies have examined the implications of preference interdependence. This paper models individual utility as depending either on the level of other people's consumption or on the difference in consumption levels. It assumes that the impact of an increase in other people's consumption on individual utility diminishes with the level of consumption, raising individual utility when that consumption is very small and lowering it when that consumption is very large. Based on that plausible assumption, the paper shows that, whether individual utility depends on the level of other people's consumption or on the difference in consumption levels, (1) welfare declines with inequality, (2) equilibrium inequality is inefficient, and (3) the optimal intervention leads to a more equal distribution. Implications for the role of development institutions are examined. This paper--a product of the Trade Team, Development Research Group--is part of a larger effort in the group to examine the impact of inequality on efficiency. ER -