This paper briefly and informally surveys different theoretical models of relative concerns and their relation to inequality. Models of inequity aversion in common use in experimental economics imply a negative relation between inequality and happiness. In contrast, empirical studies on happiness typically employ models of relative concerns that assume that increases in others’ income always have a negative effect on own happiness. However, in these latter models, the relation between inequality and happiness can be positive. One possible solution is a rivalry model where a distinction is made between endowment and reward inequality which have respectively a negative and positive effect on happiness. These different models and their contrasting results may clarify why the empirical relationship between inequality and happiness has been difficult to establish.

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The earliest economic theory of discrimination proposed the subsequently neglected idea of a “vicious circle ” of discrimination (Myrdal, 1944). We draw on psychological evidence (that people derive utility from believing that the world is just) to propose a behavioral economic model in which the vicious circle envisaged by Myrdal can arise. We demonstrate the power of this approach through an application to the issue of whether and how to justify penalty enhancements for hate crimes against members of disfavored groups. The crucial assumption

Highly pathogenic strains of the A/H5N1 subtype of inuenza the so-called bird u which has been intermittently infecting humans since May 1997 are thought to spread from migratory waterfowl to chickens and then to humans [39]. Over 30 nations have experienced an outbreak of bird u in their chicken populations and 285 humans1 have been infected with H5N1. Although only 170 people have died from bird u [40], if the5 H5N1 subtype were to acquire the ability to spread from human to human, the ensuing pandemic could cause an estimated 62 million or more humans deaths [26]. It has also been predicted that a pandemic would have large economic costs, perhaps as much as a 4.7 percent reduction in U.S. gross domestic product alone [11, p. 12]. For most governments, the primary strategy against bird u is the development and10 stockpiling of antivirals and vaccines to limit human infection. Until an e¤ective treatment is developed and as a precaution against the possible failure of treatment, however, many countries also pursue a policy of culling chickens once they discover an H5N1 outbreak among chickens. Indeed, since 2003 over 100 million chickens have been culled worldwide [38].215

”First order precaution ” directly affects the probability of an accident, such as judging the speed of a car and stepping on the brakes. Intentions are not always realized, so first order precaution is a draw from a probability distribution. Drawing an uncharacteristically low value is a “lapse. ” “Second order precaution ” reduces the probability of a lapse. Examples include concentration when driving and preparation before performing a medical operation. The prevailing tort rule holds the injurer liable for harm caused by unreasonable first order precaution, regardless of second order precaution. Unlike the standard model, our model allows injurers to make second order precaution observable at a cost. Modifying the prevailing tort rule to allow a defense of second order reasonableness will cause injurers to satisfy the legal standard and make this fact observable. Three distinct advantages follow. First, the courts can set the legal standard to induce socially efficient second order behavior. Second, this defense reduces the burden of liability on the underlying activity, which is especially desirable to encourage activities that benefit others, such as practicing medicine. Third, this defense reduces the attraction of actors to activities and forms of precaution that decrease the probability of a lapse and increase the overall risk of an accident. 2

This paper analyzes the consequences of the findings from research into self-reported well being or happiness for taxation. It primarily considers two findings: that happiness depends on status as well as income, and that individuals may adapt to disability, exhibiting relatively small losses in happiness from disabilities. In each case, it examines how adding these concerns to standard tax models changes the results and then compares the empirical findings of the happiness literature to see whether they provide the type of data needed to parameterize the models. In both cases, the theoretical models ask for different types of data than the happiness studies emphasize. The paper also looks at Robert Frank’s arguments for a progressive consumption tax based on the findings of the happiness research. It finds that these claims are not supported by the current findings. Preliminary Draft. Please do not cite without permission.