NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Manufactured Inequality

Sherwin Rosen

NBER Working Paper No. 5846
Issued in December 1996
NBER Program(s):   LS

Many discrete life choices--where to live, what kind of job to hold, and consumption lifestyle--are stratified by income. Stratification and sorting often manifest state-dependent preferences in which the marginal utility of income (consumption) depends on the outcome of prior choices. For example, one can choose to live a quiet life in the country, where money buys few things, or can choose a more active and exciting lifestyle in a large city, where money has greater value because all kinds of goods are available to buy. The natural market equilibrium stratification is for rich people to live in the city, where their money has more value, and for poor people to live in the country, where money is less productive. But before location is chosen, the a priori von Neuman-Morgenstern utility function over both choices can take the Friedman-Savage form, providing pareto efficient social demands for inequality. If there is not enough inequality to produce the socially optimum stratification to begin with, inequality is socially manufactured. People voluntarily participate in gambles and lotteries in which the winners are rich and live in the exciting places and the losers are poor and choose the quiet life. There is a inequality.

download in pdf format
   (440 K)

email paper

This paper is available as PDF (440 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w5846

Published: Journal of Labor Economics, Vol. 15, no. 2 (April 1997): 189-196.

Users who downloaded this paper also downloaded these:
Neal and Rosen w6378 Theories of the Distribution of Labor Earnings
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us