Inequality aversion and competition via effort

Sammanfattning: This paper examines the possible consequences induced by inequality aversion in a competitive setting. By employing the Cournot toolkit, the paper puts forward a competition via effort model. Using the equilibrium for rational players as a benchmark for comparison, the paper identifies the type of suboptimal equilibria that could potentially emerge if agents display a bias toward inequality. The analysis isolates the welfare losses generated by inequality reduction. Based on the findings the paper calls for pragmatism and education to fight against the bias.