Comparing aversions to outcome inequality and social risk in health and income : an empirical analysis using hypothetical scenarios with losses

Evaluation of future social welfare may not only depend on the aggregate of individual prospects, but also on how the prospects are distributed across individuals. The latter in turn would depend on how people perceive inequality and risk at the collective level (or “social risk”). This paper examines distributional preferences regarding inequality in outcomes and social risk for health and income, in the context of losses. Specifically, four kinds of aversions are compared: outcome-inequality aversion in health, outcome-inequality aversion in income, social risk aversion in health, and social-risk aversion in income. Face-to-face interviews of a representative general public sample in Spain are undertaken using hypothetical scenarios involving losses in health or income across otherwise equal groups. Aversion parameters are compared assuming Social Welfare Functions with constant relative or constant absolute aversion. We find that outcome-inequality aversion and social-risk aversion within either domain are not the same, and that neither aversion is the same across the two domains: there are statistically significant differences, with outcome-inequality aversion in income the strongest, followed by social-risk aversion in income and social-risk aversion in health (although not significantly different under constant absolute aversion), and outcome-inequality aversion in health coming last.