Last word not yet spoken: a reinvestigation of last place aversion with aversion to rank reversals
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Last word not yet spoken: a reinvestigation of last place aversion with aversion to rank reversals Andrea F. M. Martinangeli1 · Lisa Windsteiger1 Received: 1 February 2019 / Revised: 10 September 2020 / Accepted: 15 September 2020 © Economic Science Association 2020
Abstract Preferences over social ranks have emerged as potential drivers of weaker than expected support for redistributive interventions among those closest to the bottom of the income distribution. We compare preferences for alterations of the income distribution affecting the decision maker’s social rank, but not their income, and compare them with similar alterations leaving both rank and income unchanged. Our study fails to find evidence of last-place aversion in a replication of Kuziemko et al. (Q J Econ 129(1):105–149, 2014). However, using a modified design that holds ranks fixed across rounds we find support for both a discontinuously greater disutility from occupying the last as opposed to higher ranks, thus affecting only those closest to the bottom of the distribution, and for a general dislike of rank reversals affecting most ranks. We discuss implications for policy design in both public finance and management science. Keywords Income distribution · Last place aversion · Positional concerns · Preferences for redistribution · Rank reversal aversion JEL Classification C91 · D31 · H23
Electronic supplementary material The online version of this article (https://doi.org/10.1007/s1068 3-020-09682-8) contains supplementary material, which is available to authorized users. * Andrea F. M. Martinangeli [email protected] Lisa Windsteiger [email protected] 1
Max Planck Institute for Tax Law and Public Finance, Marstallpl. 1, 80539 Munich, Germany
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A. F. M. Martinangeli, L. Windsteiger
1 Introduction It is well established that relative comparisons enter individuals’ utility function (Duesenberry 1949; Blanchflower and Oswald 2004; Ferrer-i Carbonell 2005; Luttmer 2005) and research over how social rankings and one’s own placement contribute to individuals’ utility has also been gaining momentum. For instance, the effect of rank-dependent remuneration and feedback has been found to depend on individuals’ rank (Card et al. 2012; Gill et al. 2018), and the impact of society-wide exogenous shocks on demand for redistribution to depend on individuals’ income bracket (Alesina et al. 2018; Martinangeli and Windsteiger 2019). However, why individuals’ preferences over social ranks (rank preferences, henceforth) affect their demand for social policies, and how, remains poorly understood.1 The disutilities and behavioural consequences induced by changes in societal rankings, triggered by technological change, immigration or other exogenous shocks, but especially by policies explicitly addressing the shape of the income distribution, should be better understood and carefully accounted for in policy design. This paper aims at better understanding the nexus between rank preferences and demand for
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