Which Inequality? The Inequality of Resources Versus the Inequality of Rewards

Ed Hopkins, University of Edinburgh

The economic effects of inequality are investigated in a tournament model of social and economic competition. Contestants who are differentiated in ability, choose a level of output. The participant with the highest output gets the highest reward (the best match), the second placed competitor gets the second-highest reward and so on. In this model, equilibrium strategies and payoffs depend on the distributions of types of the contestants and the distribution of rewards. Thus, inequality affects individuals through conventional economic variables such as consumption and leisure. Moreover, changes in the distributions of the resources and of the rewards tend to have opposite effects on equilibrium strategies and payoffs. An increase in the inequality of competitors' resources makes many (possibly all) competitors better off, while an increase in the dispersion of the rewards makes many (possibly all) competitors worse off. Typically, more dispersed rewards (resources) induce lower (higher) effort by the low ability.

About the speaker
Ed Hopkins is a professor in the Economics group, University of Edinburgh and currently holds an ESRC research fellowship. Graduated from the European University Institute, in Florence, Italy, he spent January-March '01 as a Jean Monnet visiting fellow. He has been a visiting professor at the Department of Economics, University of Pittsburgh (academic year 99/00) and at the UC Santa Barbara and Caltech (January-June 2006). His area of interest is game theory and more generally microeconomic theory. He has been particularly interested in the theory of learning in games, and other aspects of behavioural economics. Recently has begun to work on “social economics”, with a particular focus on the importance of rank, status and esteem. He gave the first Edinburgh University Thomson Prize lecture.

Venue: Keizer Karelplein 19, Maastricht

Date: 15 March 2007

Time: 16:00  CEST