Relativity, rank and the utility of income

Rablen, Matthew D. (2008) Relativity, rank and the utility of income. Economic Journal, 118 (528). pp. 801-821. ISSN 0013-0133

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Relative utility has become an important concept in several disjoint areas of economics. I present a cardinal model of income utility based on the supposition that agents care about their rank in the income distribution and that utility is subject to adaptation over time. Utility levels correspond to the Leyden Individual Welfare Function while utility differences yield a version of the prospect theory value function, thereby providing a new and shared derivation of each. I offer an explanation of some long-standing paradoxes in the wellbeing literature and an insight into the links between relative comparisons and loss aversion.

Item Type: Article
Subjects: University of Westminster > Westminster Business School
Depositing User: Miss Nina Watts
Date Deposited: 07 Apr 2009 15:40
Last Modified: 07 Apr 2009 15:40

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