Inequality Within and Between Families
NBER Working Paper No. 405
Between-family differences in expenditures and output reflect the effect of simultaneous increases in children's ability on the willingness of parents to transfer resources to them. Within-family differences also reflect the attitudes of parents toward disparity among children. In this paper we characterize the conditions on parents' preferences that determine whether between-family differences exceed within-family differences. For an additive utility, within-family differences in expenditures always exceed between-family differences. This may also be true for the maximum utility function if an increase in ability reduces the marginal utility of income. Within-family differences in output (utility or income) can also exceed between-family differences. In this case, the implication for income distribution is that equality is enhanced by a higher correlation of ability between brothers.
Published: Journal of Political Economy, Vol. 90, no. 1 (1982): 105-127.